NOTES ON CORPORATION LAW | RM SANTIAGO 145
[2] Liquidation Through a Court-Appointed Receiver
While the appointment of a receiver rests within the sound
judicial discretion of the court, such discretion must, however,
always be exercised with caution and governed by legal and
equitable principles, the violation of which will amount to its
abuse, and in making such appointment the court should take
into consideration all the facts and weigh the relative
advantages and disadvantages of appointing a receiver to wind
up the corporate business. (China Banking Corp. v. M.
Michelin & Cie, 58 Phil. 261 (1933).
When the liquidation of a dissolved corporation has been placed
in the hands of a receiver or assignee, the 3-year period
prescribed by law for liquidation cannot be made to
apply, and that the receiver or trustee may institute all actions
leading to the liquidation of the assets of the corporation even
after the expiration of said period. (Sumera v. Valencia)
[3] Liquidation Pursued Through a Trustee
Where the affairs of the dissolved corporation were placed in a
Board of Liquidators, they were duly constituted as trustees for
the liquidation of the corporate affairs, and there being no term
placed on the Board, their power to pursue liquidation did not
terminate upon the expiration of the 3-year period. (Board of
Liquidators v. Kalaw, 20 SCRA 987 [1967]).
There is no time limit within which the trustees must complete
a liquidation placed in their hands. What is provided in [Section
139 of Revised Corporation Code] is that the conveyance to
the trustees must be made within the 3-year period. But
it may be found impossible to complete the work of liquidation
within the 3-year period or to reduce disputed claims to
judgment. Furthermore, [Section 184 of Revised Corporation
Code] clearly provides that “no right or remedy in favor of or
against any corporation, its stockholders, members, directors,
trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the subsequent
dissolution of said corporation.” (Vigilla v. Philippine College
of Criminology, Inc., 698 SCRA 247 [2013]).
Trustee may continue to prosecute a case commenced by the
corporation within 3 years from its dissolution until
rendition of the final judgment, even if such judgment is
rendered beyond the 3-year period allowed by [Section 139 of
Revised Corporation Code]. However, there is nothing in the
said cases that allows an already defunct corporation to initiate
a suit after the lapse of the said 3-year period. To allow
petitioner to initiate the subject complaint and pursue it until
final judgment, on the ground that such complaint was filed for
the sole purpose of liquidating its assets, would be to
circumvent the provisions of Corporation Code. (Alabang Dev.
Corp. v. Alabang Hills Village Assn., 724 SCRA 321 (2014).
[D] FINANCIAL REHABILITATION AND
INSOLVENCY OF 2010 (RA 10142)
Section 1. Title. – This Act shall be known as the “Financial
Rehabilitation and Insolvency Act (FRIA) of 2010.”
Background of the FRIA
PILIPINAS SHELL PETROLEUM v. ROYAL FERRY
815 SCRA 379 (2017)
Facts: Royal Ferry’s principal place of business is found in
Bangkal, Makati City and currently holds office at Room 203,
BF Condominium in Intramuros, Manila. Royal Ferry filed a
Petition for Voluntary Insolvency before RTC Manila due to
serious business losses and heavy debts. Efforts to revive
Royal Ferry failed and almost all assets were foreclosed or
sold to satisfy liabilities.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
On 28 February 2002, Royal Ferry ceased operations and on
25 August 2005, the BOD approved and authorized the filing
of a petition for voluntary insolvency. RTC had declared
Royal Ferry as insolvent.
Pilipinas Shell filed before RTC Manila a Formal Notice of
Claim and a Motion to Dismiss. It alleged that the Petition
was filed in the wrong venue. It argued that the Petition
should have been filed in Makati and not in Manila.
Held: The Petition for Insolvency was properly filed before
the RTC of Manila.
(1) Governing Laws on Insolvency. - The first insolvency
law, Act No. 1956, was entitled "An Act Providing for the
Suspension of Payments, the Relief of Insolvent Debtors, the
Protection of Creditors, and the Punishment of Fraudulent
Debtors (Insolvency Law)". It was derived from the
Insolvency Act of California (1895), with few provisions
taken from the United States Bankruptcy Act of 1898.
With the enactment of Republic Act No. 10142, otherwise
known as the Financial Rehabilitation and Insolvency Act of
2010 (FRIA), the Insolvency Law was expressly repealed on
July 18, 2010. The FRIA is currently the special law that
governs insolvency. However, because the relevant
proceedings in this case took place before the enactment of
the FRIA, the case needs to be resolved under the provisions
of the Insolvency Law.
Insolvency proceedings are defined as the statutory
procedures by which a debtor obtains financial relief and
undergoes judicially supervised reorganization or liquidation
of its assets for the benefit of its creditors.
(2) Legal Fiction of Principal Office Should Give Way
to Fact. - The venue for a petition for voluntary insolvency
proceeding under the Insolvency Law is [RTC] of the
province or city where the insolvent debtor resides. A
corporation is considered a resident of the place where its
principal office is located as stated in its Articles of
Incorporation. However, when it is uncontroverted that the
insolvent corporation abandoned the old principal office, the
corporation is considered a resident of the city where its
actual principal office is currently found.
Respondent is a resident of Manila. The law should be read
to lay the venue of the insolvency proceeding in the actual
location of the debtor's activities. If it is uncontroverted
that respondent's address in its Articles of Incorporation is
no longer accurate, legal fiction should give way to fact.
Thus, the Petition was correctly filed before the Regional
Trial Court of Manila.
Section 2. Declaration of Policy. – It is the policy of the
State to encourage debtors, both juridical and natural
persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights.
In furtherance thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or
liquidation of debtors.
The rehabilitation or liquidation shall be made with a view
to ensure or maintain certainty and predictability in
commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment
of creditors who are similarly situated.
When rehabilitation is not feasible, it is in the interest of the
State to facilitate a speedy and orderly liquidation of these
debtor's assets and the settlement of their obligations.

The FRIA applies not only to juridical persons but also to natural
persons. The policy also makes reference to “priority of claims”
under concurrence and preference rules.
Nature of Proceedings
Section 3. Nature of Proceedings. –
[Proceedings are In Rem]
The proceedings under this Act shall be in rem. Jurisdiction
over all persons affected by the proceedings shall be
considered as acquired upon publication of the notice of
the commencement of the proceedings in any newspaper of
general circulation in the Philippines in the manner
prescribed by the rules of procedure to be promulgated by
the Supreme Court.
[Summary and Non-Adversarial]
The proceedings shall be conducted in a summary and non-
adversarial manner consistent with the declared policies of
this Act and in accordance with the rules of procedure that
the Supreme Court may promulgate.
GOLDEN CANE FURNITURE v. STEELPRO
788 SCRA 82 (2016)
Nature of Proceedings. - A corporate rehabilitation case
is a special proceeding in rem wherein the petitioner
seeks to establish the status of a party or a particular fact,
i.e., the inability of the corporate debtor to pay its debts
when they fall due. It is summary and non-adversarial
in nature. Its end goal is to secure the approval of a
rehabilitation plan to facilitate the successful recovery of the
corporate debtor. It does not seek relief from an injury
caused by another party.
Rehabilitation and Liquidation, Concept
Rehabilitation
Rehabilitation shall refer to the restoration of the debtor to a
condition of successful operation and solvency, if it is shown
that its continuance of operations is economically feasible and
its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues
as a going concern than if its immediately liquidated.
Liquidation, When Applied
When rehabilitation is not feasible, it is in the interest of the
State to facilitate a speedy and orderly liquidation of these
debtor's assets and the settlement of their obligations.
VIVA SHIPPING LINES v. KEPPEL PHILIPPINES
784 SCRA 173 (2016)
Facts: Viva filed a Petition for Corporate Rehabilitation with
RTC Lucena. It alleged that the devaluation of the peso,
increased competition, and mismanagement of business
made it difficult to pay its debts as they became due. It
alleged that its vessels were rendered unserviceable either
because of age and deterioration and that it can no longer
compete with modern made vessels of other operators. RTC
dismissed the petition and lifted the stay order for failure to
show the company’s viability and feasibility of the
rehabilitation. It found that its assets were found to be non-
performing among other reasons.
Held: (1) Corporate Rehabilitation. - Corporate
rehabilitation is a remedy for corporations, partnerships,
and associations "who [foresee] the impossibility of meeting
[their] debts when they respectively fall due." A corporation
under rehabilitation continues with its corporate life and
activities to achieve solvency, or a position where the
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 146
corporation is able to pay its obligations as they fall due in
the ordinary course of business. Solvency is a state where
the businesses' liabilities are less than its assets.
Corporate rehabilitation is a type of proceeding available to
a business that is insolvent. In general, insolvency
proceedings provide for predictability that commercial
obligations will be met despite business downturns.
Stability in the economy results when there is assurance to
the investing public that obligations will be reasonably paid.
(2) Corporate Liquidation. - Clearly then, there are
instances when corporate rehabilitation can no longer be
achieved. When rehabilitation will not result in a better
present value recovery for the creditors, the more
appropriate remedy is liquidation.
It does not make sense to hold, suspend, or continue to
devalue outstanding credits of a business that has no chance
of recovery. In such cases, the optimum economic welfare
will be achieved if the corporation is allowed to wind up its
affairs in an orderly manner. Liquidation allows the
corporation to wind up its affairs and equitably distribute its
assets among its creditors.
Liquidation is diametrically opposed to rehabilitation. Both
cannot be undertaken at the same time. In
rehabilitation, corporations have to maintain their assets to
continue business operations. In liquidation, on the other
hand, corporations preserve their assets in order to sell
them. Without these assets, business operations are
effectively discontinued. The proceeds of the sale are
distributed equitably among creditors, and surplus is
divided, or losses are re-allocated.
Proceedings in case of insolvency are not limited to
rehabilitation. Our laws have evolved to provide for different
procedures where a debtor can undergo judicially supervised
reorganization or liquidation of its assets.
Covered Persons
Section 4(k). Debtor shall refer to, unless specifically
excluded by a provision of this Act, a sole proprietorship
duly registered with the Department of Trade and Industry
(DTI), a partnership duly registered with the Securities and
Exchange Commission (SEC), a corporation duly organized
and existing under Philippine laws, or an individual debtor
who has become insolvent as defined herein.
Debtors, Defined
1. Individual Debtor – an individual debtor shall refer
to a natural person who is a resident and citizen of
the Philippines that has become insolvent.
2. A sole proprietorship duly registered with the DTI
3. A partnership registered with the SEC
4. A corporation duly organized under Philippine laws.
Exclusions
Section 5. Exclusions. – The term debtor does not include
banks, insurance companies, pre-need companies, and
national and local government agencies or units.
For purposes of this section:
a. Bank shall refer to any duly licensed bank or
quasi-bank that is potentially or actually subject to
conservatorship, receivership or liquidation
proceedings under the New Central Bank Act
(Republic Act No. 7653) or successor legislation;
b. Insurance company shall refer to those
companies that are potentially or actually subject

to insolvency proceedings under the Insurance
Code (Presidential Decree No. 1460) or successor
legislation; and
c. Pre-need company shall refer to any corporation
authorized/licensed to sell or offer to sell pre-need
plans.
Provided, That government financial institutions other than
banks and government-owned or controlled corporations
shall be covered by this Act, unless their specific charter
provides otherwise.
Note: Banks, insurance companies, pre-need companies and
national and local government units are excluded since they
have their own specific procedures.
Section 7. Substantive and Procedural Consolidation.
– Each juridical entity shall be considered as a separate
entity under the proceedings in this Act.
[Prohibition Against Commingling]
Under these proceedings, the assets and liabilities of a
debtor may not be commingled or aggregated with those
of another,
unless the latter is a related enterprise that is owned or
controlled directly or indirectly by the same interests:
[Permissible Commingling with Related Interests]
Provided, however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a related
enterprise may only be allowed where:
a. there was commingling in Fact of assets and
liabilities of the debtor and the related enterprise
prior to the commencement of the proceedings;
b. the debtor and the related enterprise have
Common creditors and it will be more convenient
to treat them together rather than separately;
c. the related enterprise Voluntarily accedes to join
the debtor as party petitioner and to commingle its
assets and liabilities with the debtor's; and
d. The consolidation of assets and liabilities of the
debtor and the related enterprise is Beneficial to
all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent
the court from joining other entities affiliated with the
debtor as parties pursuant to the rules of procedure as may
be promulgated by the Supreme Court.
Insolvent Debtor
Insolvent (Section 4[p])
Insolvent shall refer to the financial condition of a debtor, that
is generally
1. unable to pay its or his liabilities1 as they fall due in
the ordinary course of business2 or
2. has liabilities that are greater than its or his assets.
2
Liabilities (Section 4[s])
It shall refer to monetary claims against the debtor,
✓ including stockholder’s advances that have been
recorded in the debtor’s audited financial statements
as those advances to future subscriptions.
[Deposit for Future Subscriptions]
3
Ordinary Course of Business (Section 4[y])
It shall refer to transactions in the pursuit of the individual
debtor’s or debtor’s business operations prior to rehabilitation
or insolvency proceedings and on ordinary business terms.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 147
Section 11. Authorization to Exchange Debt for
Equity. – Notwithstanding applicable banking legislation to
the contrary, any bank, whether universal or not, may
acquire and hold an equity interest or investment in a
debtor or its subsidiaries when conveyed to such bank in
satisfaction of debts pursuant to a Rehabilitation or
Liquidation Plan approved by the court: Provided, That such
ownership shall be subject to the ownership limits
applicable to universal banks for equity investments and:
Provided, further, That any equity investment or interest
acquired or held pursuant to this section shall be disposed
by the bank within a period of five (5) years or as may
be prescribed by the Monetary Board.
This considered as an exception to the limits in banking laws
for herein, the bank may acquire and hold an equity or interest
in satisfaction of debts in pursuant to a rehabilitation plan, but
it must be disposed by the bank within 5 years.
Remedies under the FRIA
FRIA provides following remedies in event debtor is insolvent:
1. Rehabilitation which may be voluntary, involuntary or
pre-negotiated;
2. Out of court restructuring
3. Liquidation which may be voluntary or involuntary
4. Suspension of payment for individual debtors
COURT SUPERVISED
REHABILITATION PROCEEDINGS
Rehabilitation
Rehabilitation shall refer to the restoration of the debtor to a
condition of successful operation and solvency, if it is shown
✓ that its continuance of operations is economically
feasible and
✓ its creditors can recover by way of the present value
of payments projected in the plan,
✓ more if the debtor continues as a going concern
than if its immediately liquidated.
Types of Rehabilitation Proceedings
1. Court Supervised
a. Voluntary Proceedings
b. Involuntary Proceedings
2. Pre-Negotiated
3. Out of Court or Informal
1. Voluntary Rehabilitation Proceedings
Section 12. Petition to Initiate Voluntary Proceedings
by Debtor. –
[Approval or Voting Requirement]
When approved
1. by the owner in case of a sole proprietorship, or
2. by a majority of the partners in case of a
partnership, or
3. in case of a corporation, by a majority vote of the
board of directors or trustees and authorized by
the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock,
or in case of nonstock corporation, by the vote of
at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for
the purpose,
[Petition for Rehabilitation]
[A]n insolvent debtor may initiate voluntary proceedings
under this Act by filing a petition for rehabilitation with
the court and on the grounds hereinafter specifically
provided.

The petition shall be verified to establish the insolvency of
the debtor and the viability of its rehabilitation, and include,
whether as an attachment or as part of the body of the
petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and
its addresses;
(b) Statement of the fact of and the cause of the debtor's
insolvency or inability to pay its obligations as they become
due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act
depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a
list of creditors with their addresses, amounts of claims
and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and
claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the
position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition
pursuant to this Act and the rules of procedure as may be
promulgated by the Supreme Court.
A group of debtors may jointly file a petition for
rehabilitation under this Act when one or more of its
members foresee the impossibility of meeting debts when
they respectively fall due, and the financial distress would
likely adversely affect the financial condition and/or
operations of the other members of the group and/or the
participation of the other members of the group is essential
under the terms and conditions of the proposed
Rehabilitation Plan.
2. Involuntary Rehabilitation Proceedings
Section 13. Circumstances Necessary to Initiate
Involuntary Proceedings. –
Any creditor or group of creditors with a claim of, or the
aggregate of whose claims is,
✓ at least One Million Pesos (Php1,000,000.00) or
✓ at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions,
whichever is higher,
may initiate involuntary proceedings against the debtor
by filing a petition for rehabilitation with the court if:
a. there is no genuine issue of fact on law on the
claim/s of the petitioner/s, and that
- the due and demandable payments thereon
have not been made for at least sixty (60)
days or
- that the debtor has failed generally to meet its
liabilities as they fall due; or a
b. a creditor, other than the petitioner/s, has
initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying
its debts as they become due or will render it
insolvent.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 148
Grounds to Initiate Involuntary
Rehabilitation Proceedings
The qualified creditor may file for involuntary proceedings if he
or it can show that:
a. There is no genuine issue as to the claim, meaning
that there is no question of to the claim and that there
was failure to pay within 60 days of the due and
demandable claim or debtor failed to meet liabilities
as they fall due;
b. Other creditor has filed foreclosure proceedings
that will prevent the debtor from paying debts as they
fall due or become insolvent.
Section 14. Petition to Initiate Involuntary
Proceedings. – The creditor/s’ petition for rehabilitation
shall be verified to establish the substantial likelihood
that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its
address;
(b) the circumstances sufficient to support a petition to
initiate involuntary rehabilitation proceedings under Section
13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position
of rehabilitation receiver;
(f) other information that may be required under this Act
depending on the form of relief requested; and
(g) other documents required to be filed with the petition
pursuant to this Act and the rules of procedure as may be
promulgated by the Supreme Court.
Voluntary Involuntary
Rehabilitation Rehabilitation
Filed by the insolvent debtor Filed by the creditor of group
or group of debtors of creditors
Establish the insolvency and Substantial likelihood that
viability of its rehabilitation the debtor may be
rehabilitated
3. Action the Petition and
Commencement of Proceedings
Section 15. Action on the Petition. – If the court finds
the petition for rehabilitation to be sufficient in form and
substance, it shall, within five (5) working days from the
filing of the petition, issue a Commencement Order.
If, within the same period, the court finds the petition
deficient in form or substance, the court may, in its
discretion,
give the petitioner/s a reasonable period of time within
which to amend or supplement the petition, or to submit
such documents as may be necessary or proper to put the
petition in proper order.
In such case, the five (5) working days provided above for
the issuance of the Commencement Order shall be
reckoned from the date of the filing of the amended or
supplemental petition or the submission of such documents.
NOTE: The court cannot outrightly dismiss on the basis of
deficient form and substance, it must give a reasonable period
to comply and submit documents as necessary.

Commencement Order
Section 16. Commencement of Proceedings and
Issuance of Commencement Order. – The rehabilitation
proceedings shall commence upon the issuance of the
Commencement Order which shall:
(a) identify the debtor, its principal business
activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any
requirement or procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order,
including those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
[Publication Requirements]
(f) direct the publication of the Commencement Order in
a newspaper of general circulation in the Philippines once a
week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time
of its issuance;
[Service of Petitions]
(g) If the petitioner is the debtor direct the service by
personal delivery of a copy of the petition on each creditor
holding at least ten percent (10%) of the total
liabilities of the debtor as determined from the schedule
attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal
delivery of a copy of the petition on the debtor within five
(5) days; [Note the liability requirement]
[Appointment of Rehabilitation Receiver]
(h) appoint a rehabilitation receiver who may or not be
from among the nominees of the petitioner/s and who
shall exercise such powers and duties defined in this Act as
well as the procedural rules that the Supreme Court will
promulgate;
(i) summarize the requirements and deadlines for creditors
to establish their claims against the debtor and direct all
creditors to their claims with the court at least five (5) days
before the initial hearing;
[Directing BIR To Comment]
(j) direct Bureau of internal Revenue (BIR) to file and
serve on the debtor its comment on or opposition to the
petition or its claim/s against the debtor under such
procedures as the Supreme Court provide; [To determine if
whether or not it amounts to tax evasion].
[Prohibition for Supplier to Withhold Supply]
(k) prohibit the debtor's suppliers of goods or services
from withholding the supply of goods and services in the
ordinary course of business for as long as the debtor
makes payments for the services or goods supplied after
the issuance of the Commencement Order;
[Note: This is important because rehabilitation does not
mean that the business should stop. Thus, the supplier
should not withhold its supply by mere reason that the
entity or business in under rehabilitation proceeding].
(l) authorize the payment of administrative expenses as
they become due;
(m) set the case for initial hearing, which shall not be more
than forty (40) days from the date of filing of the petition
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 149
for the purpose of determining whether there is substantial
likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation
plan for examination and copying by any interested party;
(o) indicate the location or locations at which documents
or regarding the debtor and the proceedings under Act may be
reviewed and copied;
(p) state that any creditor or debtor who is not the
petitioner, may submit the name or nominate any other
qualified person to the position of rehabilitation receiver at
least five (5) days before the initial hearing;
[Stay Order or Suspension Order]
(q) includes Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
debtor;
(2) suspend all actions to enforce any judgment,
attachment or other provisional remedies against the
debtor;
(3) prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein.
Importance of Stay or Suspension Order
Suspension or stay order shall suspend all actions or
proceedings, enforcement of judgment, and prohibits the
debtor from encumbering or disposing his assets and making
payment of liabilities. Thus, for example there is a pending
collection case against Corporation A, a stay order or
suspension order accompanying the commencement order
shall suspend the proceedings.
In this manner, the FRIA allows the debtor under rehabilitation
to restore viability and solvency so that it can continue
business. The suspension order even covers enforcement or
the execution of judgments and provisional remedies. This
allows the debtor to recuperate.
Legal Effects of the Commencement Order
Section 17. Effects of the Commencement Order. –
Unless otherwise provided for in this Act, the court's
issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section
16 hereof:
(a) vest the rehabilitation receiver with all the powers
and functions provided for this Act, such as the right to
review and obtain records to which the debtor's
management and directors have access, including bank
accounts or whatever nature of the debtor subject to the
approval by the court of the performance bond filed by the
rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis
rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered
property, or otherwise attempt to collection or enforce a
claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of
Section 50 hereof;

(c) serve as the legal basis for rendering null and void any
setoff after the commencement date of any debt owed to
the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the
perfection of any lien against the debtor's property after
the commencement date; and
(e) consolidate the resolution of all legal proceedings
by and against the debtor to the court; Provided, However,
that the court may allow the continuation of cases on other
courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor
outside these proceedings shall be sufficient to support a
finding of indirect contempt of court.
Exceptions to the Stay and Suspension Order
Section 18. Exceptions to the Stay and Suspension
Order. – The Stay or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme
Court as of commencement date Provided, That any final
and executory judgment arising from such appeal shall be
referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending
or filed at a specialized court or quasi-judicial agency
which, upon determination by the court is capable of
resolving the claim more quickly, fairly and efficiently than
the court: Provided, That any final and executory judgment
of such court or agency shall be referred to the court and
shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and
other persons solidarily liable with the debtor, and
third party or accommodation mortgagors as well as issuers
of letters of credit, unless the property subject of the third
party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a
securities market participant to recover or otherwise claim
moneys and securities entrusted to the latter in the ordinary
course of the latter's business as well as any action of such
securities market participant or the appropriate regulatory
agency or self-regulatory organization to pay or settle such
claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of securities
transactions in accordance with the provisions of the
Securities Regulation Code and its implementing rules
and regulations;
(f) the clearing and settlement of financial transactions
through the facilities of a clearing agency or similar entities
duly authorized, registered and/or recognized by the
appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions
of such agencies or entities to reimburse themselves for any
transactions settled for the debtor; and
(g) any criminal action against individual debtor or
owner, partner, director or officer of a debtor shall not be
affected by any proceeding commend under this Act.
Note: Thus, in BP 22 cases or estafa, only the civil aspect is
affected by the suspension or stay order, not the criminal.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 150
PANLILIO v. REGIONAL TRIAL COURT OF MANILA
641 SCRA 438 (2011)
Facts: Panlilio et al, field with RTC a Petition for Suspension
and Rehabilitation. The RTC issued a Stay Order all claims
against SIHI. At the time however, of the filing of the
petition for rehabilitation, there were criminal cases
pending against Panlilio et al. in RTC Manila for violation of
SSS law and Estafa.
Panlilio et al. filed a Motion to Suspend Proceedings in the
criminal court arguing that the stay order should also apply
to the criminal charges. Thus, they prayed that the criminal
court suspend proceedings until petition for rehabilitation
was finally resolved.
Issue: Does the suspension of “all claims” as an incident
to a corporate rehabilitation also contemplate the
suspension of criminal charges filed against the corporate
officers of the distressed corporation? – No.
Held: (1) Not Considered “Claim” to be Suspended. -
Consequently, the filing of [criminal case] is not a "claim"
that can be enjoined. True, although conviction of the
accused for the alleged crime could result in the restitution,
reparation or indemnification of the private offended party
for the damage or injury he sustained by reason of the
felonious act of the accused, nevertheless, prosecution for
violation of B.P. Blg. 22 is a criminal action.
The rehabilitation of SIHI and the settlement of claims
against the corporation is not a legal ground for the
extinction of petitioners' criminal liabilities. There is no
reason why criminal proceedings should be suspended
during corporate rehabilitation, more so, since the prime
purpose of the criminal action is to punish the offender in
order to deter him and others from committing the same or
similar offense, to isolate him from society, reform and
rehabilitate him or, in general, to maintain social order. It
would be absurd for one who has engaged in criminal
conduct could escape punishment by mere filing of a petition
for rehabilitation by the corporation of which he is an officer.
(2) Prosecution of Officers Have No Bearing on
Pending Rehabilitation. - The prosecution of the officers
of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are
charged in their individual capacities.
Such being the case, the purpose of the law for the issuance
of the stay order is not compromised, since the appointed
rehabilitation receiver can still fully discharge his functions
as mandated by law. It bears to stress that the
rehabilitation receiver is not charged to defend the
officers of the corporation. If there is anything that the
rehabilitation receiver might be remotely interested in is
whether the court also rules that petitioners are civilly liable.
(3) Civil Indemnity Subject to Stay Order. - Such a
scenario, however, is not a reason to suspend the criminal
proceedings, should the court prosecuting the officers of the
corporation find that an award or indemnification is
warranted, such award would fall under the category of
claims, the execution of which would be subject to the
stay order issued by the rehabilitation court.
The penal sanctions as a consequence of violation of the
SSS law, in relation to the revised penal code can therefore
be implemented if petitioners are found guilty after trial.
However, any civil indemnity awarded as a result of their
conviction would be subject to the stay order issued by
the rehabilitation court.

(4) FRIA Itself Excludes Criminal Actions. - On a final
note, this Court would like to point out that Congress has
recently enacted Republic Act No. 10142, or the Financial
Rehabilitation and Insolvency Act of 2010. Section 18
thereof explicitly provides that criminal actions against the
individual officer of a corporation are not subject to the Stay
or Suspension Order in rehabilitation proceedings, to wit:
The Stay or Suspension Order shall not apply:
(g) any criminal action against individual debtor or owner,
partner, director or officer of a debtor shall not be affected
by any proceeding commenced under this Act.
TOWN AND COUNTRY ENTERPRISES v. QUISUMBING
682 SCRA 128 (2012)
A Stay Order cannot be implemented against claim that
has already been enforced, when the period for redemption
of foreclosed property has expired.
Considering that Metrobank acquired ownership over the
mortgaged properties upon the expiration of the redemption
period on 6 February 2002, TCEI is also out on a limb in
invoking the Stay Order issued by the Rehabilitation Court
on 8 October 2002 and the approval of its rehabilitation plan
on 29 March 2004. An essential function of corporate
rehabilitation is, admittedly, the Stay Order which is a
mechanism of suspension of all actions and claims against
the distressed corporation upon the due appointment of a
management committee or rehabilitation receiver. The Stay
Order issued by the Rehabilitation Court in SEC Case No.
023-02 cannot, however, apply to the mortgage obligations
owing to Metrobank which had already been enforced even
before TCEI’s filing of its petition for corporate rehabilitation
on 1 October 2002.
Section 19. Waiver of Taxes and Fees Due to the
National Government and to Local Government Units
(LGUs). – Upon issuance of the Commencement Order by
the court, and until the approval of the Rehabilitation Plan
or dismissal of the petition, whichever is earlier, the
imposition of all taxes and fees including penalties,
interests and charges thereof due to the national
government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.
Section 20. Application of Stay Order or Suspension
Order to Government Financial Institutions. – The
provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension Order
on the suspension of rights to foreclose or otherwise pursue
legal remedies shall apply to government financial
institutions, notwithstanding provisions in their charters or
other laws to the contrary.
Effectivity and Duration of Commencement Order
Section 21. Effectivity and Duration of
Commencement Order. – Unless lifted by the court, the
Commencement Order shall effective for the duration of the
rehabilitation proceedings for as long as there is substantial
likelihood that the debtor will be successfully rehabilitated.
In determining whether there is substantial likelihood for
the debtor to be successfully rehabilitated, the court shall
ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies
with the minimum contents prescribed by this Act;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 151
(b) There is sufficient monitoring by the rehabilitation
receiver of the debtor's business for the protection of
creditors;
(c) The debtor has met with its creditors to the extent
reasonably possible in attempts to reach consensus on the
proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on
preliminary evaluation, stating that the underlying
assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic and reasonable or if not,
there is, in any case, a substantial likelihood for the debtor
to be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to
rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the
operations of the debtor;
(3) the debtor's, partners, stockholders, directors and
officers have been acting in good faith and
which due diligence;
(4) the petition is not a sham filing intended only to
delay the enforcement of the rights of the
creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a
viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the
attachments thereto do not contain any materially false or
misleading statement;
(f) If the petitioner is the debtor, that the debtor has met
with its creditor/s representing at least three-fourths (3/4)
of its total obligations to the extent reasonably possible and
made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan
if the petitioner/s is/are a creditor or group of creditors,
that/ the petitioner/s has/have met with the debtor and
made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation
or in fraud of its creditor/s or a group of creditors.
Section 22. Action at the Initial Hearing. – At the initial
hearing, the court shall:
(a) determine the creditors who have made timely and
proper filing of their notice of claims;
(b) hear and determine any objection to the
qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a
new one in accordance with this Act;
(c) direct the creditors to comment on the petition and
the Rehabilitation Plan, and to submit the same to
the court and the rehabilitation receiver within a
period of not more than 20 days; and
(d) Direct the rehabilitation receiver to evaluate the
financial condition of the debtor and to prepare
and submit to the court within 40 days from initial
hearing the report.
Section 23. Effect of Failure to File Notice of Claim. –
A creditor whose claim is not listed in the schedule of debts
and liabilities and who fails to file a notice of claim in
accordance with the Commencement Order but
subsequently files a belated claim shall not be entitled to
participate in the rehabilitation proceedings but shall
be entitled to receiver distributions arising therefrom.

Section 24. Report of the Rehabilitation Receiver. –
Within 40 days from the initial hearing and with our without
the comments of the creditors or any of them, the
rehabilitation shall submit a report to the court stating his
preliminary findings and recommendations on whether:
(a) Debtor is insolvent and if so, the causes thereof and any
unlawful or irregular act or acts committed by the owner/s
of a sole proprietorship, partners of a partnership, or
directors or officers of a corporation, in contemplation of
the insolvency of the debtor or which may have contributed
to the insolvency of the debtor;
(b) The underlying assumptions1, the financial goals and
the procedures to accomplish such goals as stated in the
petitioner’s rehabilitation plan are realistic, feasible and
reasonable;
(c) There is a substantial likelihood2 for the debtor to be
successfully rehabilitated;
(d) Petition should be dismissed; and
(e) Debtor should be dissolved or liquidated.
Report of the Rehabilitation Receiver
The rehabilitation receiver has a vital role. The receiver is then
required to submit his preliminary findings, recommendations
within 40 days from initial hearing.
1
Underlying assumptions refer to considerations to determine
whether rehabilitation plan is feasible or even reasonable. For
example, the economic situation and business factor wherein
the business would not suffer untimely business reverses.
2
The quantum of proof required “substantial likelihood” of
having sufficient assets, cash flows, good faith and due
diligence which the rehabilitation can succeed.
Action by the Court on the Report
Section 25. Giving Due Course to or Dismissal of
Petition, or Conversion of Proceedings. – Within 10
days from receipt of the report of the rehabilitation receiver
the court may:
(a) Give Due Course to the Petition upon a finding that:
1. The debtor is insolvent; and
2. There is a substantial likelihood for the debtor
to be successfully rehabilitated. [See Sec. 26]
(b) Dismiss the Petition upon a finding that:
1. Debtor is not insolvent;
2. The petition is a sham filing intended to delay the
enforcement of the rights of the creditor/s or of
any group of creditors.
3. The petition, the Rehabilitation Plan and the
attachments thereto contain any materially false
or misleading statements; or
4. The debtor has committed acts of
misrepresentation or in fraud of its creditor/s or
a group of creditors. [See Sec. 27]
(c) Convert the Proceedings into one for the liquidation
of the debtor upon finding that:
1. The debtor is insolvent; and
2. There is no substantial likelihood for the debtor
to be successfully rehabilitated as determined in
accordance with rules to be promulgated by the
Supreme Court.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 152
In the Event Petition is Given Due Course
Section 26. Petition Given Due Course. – If the petition
is given due course, the court shall direct the rehabilitation
receiver to review, revise and/or recommend action on
the Rehabilitation Plan and submit the same or a new one
to the court within a period of not more than 90 days.
The court may refer any dispute relating to the
Rehabilitation Plan or the rehabilitation proceedings before
it to arbitration or other modes of dispute resolution, as
provided under RA 9285, or the ADR Act of 2004, should it
determine that such mode will resolve the dispute more
quickly, fairly and efficiently than the court.
In the Event Petition is Dismissed
Section 27. Dismissal of Petition. – If the petition is
dismissed pursuant to paragraph (b) of Section 25 hereof,
then the court may, in its discretion, order the petition to
pay damages to any creditor or to the debtor, as the case
may be, who may been injured by the filing of the petition,
to the extent of any such injury.
An example is when there is a sham filing of a petition for
rehabilitation by the debtor in order to prevent or delay the
collections of the creditor, the court may order damages.
4. Rehabilitation Receiver, Management
Committee and Creditors’ Committee
a. The Rehabilitation Receiver
Initial Appointment of the Rehabilitation Receiver
The court shall initially appoint the rehabilitation receiver, who
may or may not be from among the nominees of the
petitioner: HOWEVER: at the initial hearing, creditors and the
debtor who are not petitioners may nominate other persons to
the position.
The court may retain the rehabilitation receiver initially
appointed or appoint another who may or may not be from
among those nominated (Section 30).
In case the debtor is a securities market participant, the court
shall give priority to the nominee of the appropriate securities
or investor protection fund.
Creditors’ Nominee, When Court Shall Appoint
If a qualified natural person or entity is
✓ Nominated by more than 50% of the secured
creditors and the general unsecured creditors, and
✓ Satisfactory evidence is submitted,
the court shall appoint the creditors’ nominee as
rehabilitation receiver (Section 30).
Who May Serve as a Rehabilitation Receiver
Any qualified natural or juridical person may serve as a
rehabilitation receiver: Provided, That if the rehabilitation
receiver is a juridical entity:
1. it must designate a natural person/s who possess/es
all the qualifications and none of the disqualification’s
as its representative,
2. it being understood that the juridical entity and the
representative/s are solidarily liable for all
obligations and responsibilities of the rehabilitation
receiver. (Section 28).
Qualifications of a Rehabilitation Receiver
The rehabilitation receiver shall have the following minimum
qualifications:

1. A Filipino citizen or a resident of the Philippines in the 6
months immediately preceding his nomination;
2. Of Good moral character and with acknowledged
integrity, impartiality and independence;
3. Has the requisite Knowledge of insolvency and other
relevant commercial laws, rules and procedures, as well
as the relevant training and/or experience that may be
necessary to enable him to properly discharge duties and
obligations of a rehabilitation receiver; and
4. Has no Conflict of interest; BUT: conflict of interest may
be waived, by a party who may be prejudiced thereby.
(Section 29).
Oath and Bond of the Rehabilitation Receiver
Prior to entering upon his position, the rehabilitation receiver
shall take an oath and file a bond, in such amount fixed by the
court, conditioned upon faithful and proper discharge of his
powers, duties and responsibilities. (Section 34)
Powers, Duties and Responsibilities of the
Rehabilitation Receiver (Section 31)
The rehabilitation receiver shall be deemed an officer of the
court with the principal duties of:
(a) Preserving and maximizing the value of the assets of
the debtor during rehabilitation proceedings;
(b) Determining the viability of the rehabilitation of the
debtor, preparing and recommending a Rehabilitation
Plan to the court;
(c) Implementing the approved Rehabilitation Plan.
To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following
powers, duties and responsibilities to:
[1] Verify accuracy of the factual allegations in petition and
annexes;
[2] Verify and correct, if necessary, the
• Inventory of all the assets, and their valuation;
• Schedule of Debts and Liabilities
[3] Evaluate the validity, genuineness and true amount of all
the claims against the debtor;
[4] Take possession, custody and control and to preserve
value of all the property of the debtor;
[5] Sue and recover, with the approval of the court, all
amounts owed to, and all properties pertaining to the debtor;
[6] Have access to all information necessary, proper or
relevant to operations and business of the debtor and for its
rehabilitation;
[7] Sue and recover, with approval of the court, all property or
money of the debtor paid, transferred or disbursed in fraud
of the debtor or its creditors, or which constitute undue
preference of creditor/s;
[8] Monitor the operations and the business of the debtor to
ensure that no payments or transfers of property are made
other than in the ordinary course of business;
[9] Engage, with the court’s approval, the services of or to
employ persons or entities to assist him in the discharge of his
functions;
✓ The rehabilitation may engage the employment of
direct employees or independent contractors.
[10] Determine manner by which the debtor may be best
rehabilitated; review, revise and/or recommend action on the
rehabilitation plan and submit the same or a new one of the
court for approval;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 153
[11] Implement the approved rehabilitation plan as approved
by the court, if so provided under the rehabilitation plan;
[12] Assume and exercise the powers of management of the
debtor, if directed by the court;
[13] Exercise such other powers as may, from time to time, be
conferred upon him by the court; and
[14] Submit a status report on the rehabilitation proceedings
every quarter or as may be required by the court motu
proprio or upon any creditor’s motion, or as may be provided,
in the approved rehabilitation plan.
Unless appointed by the court*, the rehabilitation receiver
shall not take over the management and control of the
debtor but may recommend the appointment of a
management committee over the debtor in the cases
provided by FRIA. [See Section 36]
SIOCHI FISHERY ENTERPRISES v. BPI
659 SCRA 817 (2011)
As an officer of the court and an expert, the rehabilitation
receiver plays an important role in corporate rehabilitation
proceedings. In Pryce v. CA (2008), the Court held that “the
purpose of the law in directing the appointment of receivers
is to protect the interests of the creditors and investors.”
Compensation and Terms of Service (Section 33)
Rehabilitation receiver and his direct employees or
independent contractors shall be entitled to compensation for
reasonable fees and expenses from the debtor
✓ As approved by the court after notice and hearing.
Prior to such hearing, the rehabilitation receiver and his direct
employees shall be entitled to
✓ Reasonable compensation
✓ Based on quantum meruit being considered
administrative expenses.
Removal of the Rehabilitation Receiver (Section 32)
Rehabilitation receiver may be removed
✓ At any time by the court
Either
1. Motu proprio, or
2. Upon motion by any creditor/s holding more than
50% of the total obligation of the debtor
On such grounds as the rules of procedure may provide, which
shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or to
exercise the proper degree of care in the performance of
his duties;
(b) Lack of a particular or specialized competency;
(c) Illegal acts or conduct in the performance of his duties;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his employment;
(f) Manifest lack of independence detrimental to the
general body stakeholders;
Note: Even if the appointed receiver was not a nominee of the
petitioners, the Court or the creditor/s upon motion may move
for the removal. Note that for removal, aside from the court,
it is the creditors.
Vacancy (Section 35)
In case the position of rehabilitation receiver is vacated for any
reason whatsoever, the court shall direct debtor and creditors
to submit nominees to the position. The court may appoint
✓ Any of the qualified nominees; or
✓ Any other person qualified for the position.

General Rule: The receiver does not have power to take over
the management of the debtor (Section 31).
Exception: Upon motion of the interested party the court may
appoint and direct the rehabilitation receiver to assume powers
of management (Section 36).
Displacement of Existing Management by the
Rehabilitation Receiver or Management Committee
(Section 36)
Upon motion of any interested party, the court
1. may appoint and direct the rehabilitation receiver to
assume the powers of management of the debtor; or
2. appoint a management committee that will
undertake the management of the debtor
Upon clear and convincing evidence of any of the following
circumstances:
[a] Actual or imminent danger of dissipation, loss, wastage
or destruction of the debtor’s assets or other properties;
[b] Paralyzation of the business operations of the debtor; or
[c] Gross mismanagement of the debtor or fraud or other
wrongful conduct on the part of, or gross or willful violation
of this Act by existing management of the debtor, or the
owner, partner, director, officer or representative/s in
management of the debtor.
In case the court appoints the rehabilitation receiver to assume
the powers of management of the debtor, the court may:
1. Require the rehabilitation receiver to post additional
bond;
2. Authorize him to engage the services or to employ
persona or entities to assist him in the discharge of
his managerial functions; and
3. Authorize a commensurate increase in his
compensation
b. The Management Committee
Role of the Management Committee (Section 37)
When appointed by the court, the management committee
shall take place of the management and the governing body of
the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee,
whose members shall be considered as officers of the court,
shall be prescribed by the procedural rules.
JACINTO v. FIRST WOMEN’S CREDIT
410 SCRA 140 (2003)
In exercising the discretion to appoint a management
committee, officer or tribunal before whom the application
was made must take into account all the circumstances and
facts of the case, the presence of conditions and grounds
justifying the relief, the ends of justice, the rights of all the
parties interested in the controversy and the adequacy and
effectiveness of other available remedies.
In determining whether there is proper ground to appoint a
management committed, the law requires that movant must
do more than merely make a prima facie showing of a denial
of his right to share in the concerns of the corporation, but
must show with clear and convincing evidence, that the
corporate property is in danger of being diverted from the
purpose for which it has been organized.
Mere disagreement among stockholders on corporate affairs
is not in itself suffice as a ground for the appointment of a
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 154
management committee. At least where there is no
imminent danger of loss of corporate property or of any
other injury to stockholders, management of corporate
business should not be wrested away from duly elected
officers, who are prima facie entitled to administer the
affairs of the corporation.
However, where the dissent among stockholders is such that
the corporation cannot successfully carry on its corporate
functions, appointment of management committee becomes
imperative.
Qualifications of Members of the
Management Committee (Section 38)
The qualifications and disqualifications of the members of the
management committee shall be set forth in the procedural
rules, taking into consideration the nature of the business of
the debtor and the need to protect the interest of all
stakeholders concerned.
Employment of Professionals (Section 39)
Upon approval of the court, and after notice and hearing, the
rehabilitation receiver or the management committee may
employ specialized professionals and other experts to assist
each in the performance of their duties.
Such professionals and other experts shall be considered either
employees or independent contractors of the rehabilitation
receiver or the management committee, as the case may be.
The qualifications and disqualification’s of the professionals and
experts may be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.
Conflict of Interest (Section 40)
No person may be appointed as rehabilitation receiver,
member of a management committed, or be employed by the
rehabilitation receiver or the management committee if he has
a conflict of interest. An individual shall be deemed to have
a conflict of interest if he is so situated as to be materially
influenced in the exercise of his judgment for or against any
party to the proceedings:
Without limiting the generality of the foregoing, an individual
shall be deemed to have a conflict of interest if:
a. he is a creditor, owner, partner or stockholder of the
debtor;
b. he is engaged in a line of business which competes
with that of the debtor;
c. he is, or was, within five (5) years from the filing of
the petition, a director, officer, owner, partner or
employee of the debtor or any of the creditors, or the
auditor or accountant of the debtor;
d. he is, or was, within two (2) years from the filing
of the petition, an underwriter of the outstanding
securities of the debtor;
e. he is related by consanguinity or affinity within
the fourth civil degree to any individual creditor,
owners of a sale proprietorship-debtor, partners of a
partnership- debtor or to any stockholder, director,
officer, employee or underwriter of a corporation-
debtor; or
f. he has any other direct or indirect material interest in
the debtor or any of the creditors.
In Case There is Conflict of Interest
Any rehabilitation receiver, member of the management
committee or persons employed or contracted by them
possessing any conflict of interest shall make the appropriate
disclosure either to the court or to the creditors in case of out-
of-court rehabilitation proceedings.

Any party to the proceeding adversely affected by the
appointment of any person with a conflict of interest to any of
the positions enumerated above may however waive his
right to object to such appointment and,
✓ if the waiver is unreasonably withheld, the court may
disregard the conflict of interest, taking into account
the general interest of the stakeholders.
Immunity from Suit (Section 41)
The rehabilitation receiver or the members of the management
committee, and all persons employed by him/them,
Shall not be subject to any action, claim or demand in
connection
1. with any act done or omitted to be done by them in
good faith
2. in connection with the exercise of their powers and
functions under FRIA or other actions duly approved
by the court.
Note: This is considered as safe harbor provision.
c. Creditors’ Committee
Formation of Committee (Section 42)
After the creditors’ meeting duly called, the creditors belonging
class may formally organize a committee among themselves.
In addition, the creditors may, as a body, agree to from a
creditors’ committee composed of a representative from each
class of creditors, such as the following:
1. Secured creditors;
2. Unsecured creditors;
3. Trade creditors and suppliers; and
4. Employees of the debtor.
In the election of the creditors’ representatives, rehabilitation
receiver or his representative
✓ shall attend such meeting and extend the appropriate
assistance as may be defined in the procedural rules.
Role of Creditors’ Committee (Section 43)
The creditors' committee when constituted pursuant to Section
42 of this Act shall assist the rehabilitation receiver in
communicating with the creditors and
✓ shall be the primary liaison
between the rehabilitation receiver and the creditors.
The creditors' committee cannot exercise or waive any right or
give any consent on behalf of any creditor unless specifically
authorized in writing by such creditor.
The creditors' committee may be authorized by the court or by
the rehabilitation receiver
✓ to perform such other tasks and functions as may be
defined by the procedural rules in order to facilitate
the rehabilitation process.
Note: The primary objective of the creditor’s committee is to
be the liaison or intermediary between the rehabilitation
receiver and the creditors.
EXPRESS INVESTMENT v. BAYANTEL
682 SCRA 50 (2012)
The Supreme Court ruled under the Interim Rule that it
would be unlawful for the rehabilitation court to empower a
creditors’ committee to modify or supplant the decisions of
the Board of Directors of the debtor company, specially
when it is without power to act as management committee.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 155
5. Determination of Claims
Registry of Claims (Section 44)
The rehabilitation receiver shall:
(a) Establish a preliminary Registry of Claims, within 20
days from assumption into office. Only claims
supported by sufficient evidence shall be included in
the registry.
(b) Provide notice to the debtor, creditors and
stakeholders on where and when they may inspect it.
(c) Make the registry available for public inspection.
Opposition or Challenge of Claims (Section 45)
Within 30 days from the expiration of the 20-day period, the
debtor, creditors, stakeholders and other interested parties
may submit a challenge to claim/s to the court, serving a
certified copy on the rehabilitation receiver and the creditor
holding the challenged claim/s.
Upon expiration of 30-day period, the rehabilitation receiver,
shall submit to the court the Registry which shall include
undisputed claims that have not been subject to challenge.
Appeal (Section 46)
Any decision of the rehabilitation receiver regarding a claim
may be appealed to the court.
6. Governance
Management (Section 47)
General Rule: “Management-in-Place” – Unless otherwise
provided, the management of the juridical debtor shall remain
with the existing management subject to the applicable law/s
and agreement/s, if any, on the election or appointment of
directors, managers or managing partner.
HOWEVER:
1. All disbursements, payments or
2. Sale, disposal, assignment, transfer or encumbrance
of property, or
3. Any other act affecting title or interest in property,
Shall be subject to approval of the rehabilitation receiver
and/or the court, as provided in the following part:
7. Use, Preservation and Disposal of Assets
and Treatment of Assets and Claims
After Commencement Date
Use and Disposition of Assets (Section 48)
Except as otherwise provided herein, no funds or property of
the debtor shall be used or disposed of
EXCEPT:
1. In the ordinary course of business of the debtor, or
2. Unless necessary to finance the administrative
expenses of the proceedings
Sale of Assets (Section 49)
The court, upon application of the rehabilitation receiver
through a formal motion, with notice to debtor, creditors or
creditors’ committee, may authorize sale of unencumbered
property of debtor outside the ordinary course of business
When, by its nature or because of other circumstance:
1. Is perishable,
2. Costly to maintain,
3. Susceptible to devaluation, or
4. Jeopardy
Note: This refers to unencumbered property of debtor to be
sold outside ordinary course of business upon application by
rehabilitation receiver.

Rescission or Nullity of Sale, Payment
Transfer or Conveyance of Assets (Section 52)
Upon motion, after notice and hearing, the court may rescind
or declare as null and void any sale, payment, transfer or
conveyance of the debtor’s unencumbered property or any
encumbering thereof by debtor or its agents or representatives
✓ After the commencement date
✓ Which are not in the ordinary course of business of the
debtor
PROVIDED: Unencumbered property may be sold, encumbered
or otherwise disposed upon curt order after notice and hearing:
1. If in the interest of administering the debtor and
facilitating and implementation of the Rehabilitation
plan;
2. In order to provide a substitute lien, mortgage or
pledge of property under FRIA;
3. For payment made to:
a. Meet administrative expenses as they fall
due;
b. Victims of quasi-delicts on showing that the
claim is valid, and debtor has insurance to
reimbursement for payments made;
c. Repurchase debtor’s property that is
auctioned off in a judicial or extrajudicial
sale under FRIA;
d. Reclaim debtor’s property held under a
possessory lien
Post-Commencement Interest (Section 54)
The rate and term of interest, if any, on secured and unsecured
claims shall be determined and provided for in the approved
rehabilitation plan.
✓ This allows restructuring of payment for interest, for
example if the initial rate of interest is at 20%, the
Plan may provide for legal interest of 6% if approved.
Post-Commencement Loans and Obligations (Sec. 55)
With the approval of the court upon recommendation of the
rehabilitation receiver, the debtor, in order to enhance its
rehabilitation may:
(1) Enter into credit arrangement alone, or coupled with
mortgages of its unencumbered property or secondary
mortgages of encumbered property with the approval of the
senior secured parties with regard to the encumbered
property; or
(2) Incur other obligations as may be essential for its
rehabilitation.
The payment of the foregoing obligation shall be considered
administrative expense under this Act.
Note: The debtor may contract loans and obligations to further
enhance its rehabilitation but with (1) recommendation of the
rehabilitation receiver; and (2) approval of the court.
8. Rehabilitation Plan
Rehabilitation Plan (Section 4[ii])
Rehabilitation Plan shall refer to a plan by which the financial
well-being and viability of an insolvent debtor can be restored
using various means
including, but not limited to:
debt forgiveness, debt rescheduling, reorganization or
quasi-reorganization, dacion en pago, debt-equity conversion
and sale of the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in Section 62
hereof, or other similar arrangements as may be approved by
the court or creditors.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 156
Contents of the Rehabilitation Plan (Section 62)
The Rehabilitation Plan shall, as a minimum:
(a) Specifying the underlying assumptions, financial goals, and
procedures proposed to accomplish such goals, including the
duration and coverage of rehabilitation;
(b) Contain a Liquidation Analysis setting out for each
creditor or each class of creditor, the amounts they expect to
receiver under the Rehabilitation Plan, and those that they will
receive if liquidation ensues within the next 120 days after filing
of petition.
(c) contain information sufficient to give the various classes
of creditors a reasonable basis for determining whether
supporting the Plan is in their financial interest when compared
to the immediate liquidation of the debtor, including any
reduction of principal interest and penalties payable to the
creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has
been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated
including, but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business (or parts
of it) as a going concern, or setting-up of a new business entity
or other similar arrangements as may be necessary to restore
the financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in
subsections (d) and (e);
(h) provide for equal treatment of all claims within the same
class or subclass, unless a particular creditor voluntarily agrees
to less favorable treatment;
(i) ensure that the payments made under the plan follow the
priority established under the provisions of the Civil Code on
concurrence and preference of credits and other applicable
laws;
(j) maintain the security interest of secured creditors and
preserve the liquidation value of the security unless such has
been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement
debts made during the proceedings and the justifications
thereof;
(l) describe the disputed claims and the provisioning of funds
to account for appropriate payments should the claim be ruled
valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach
of which shall be considered a material breach of the Plan;
(o) identify those responsible for the future management of the
debtor and the supervision and implementation of the Plan,
their affiliation with the debtor and their remuneration;
(p) address the treatment of claims arising after the
confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the
terms of all contracts that the debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative
expenses as a condition to the Plan's approval unless such
condition has been waived in writing by the creditors
concerned;
(s) arrange for the payment of all outstanding taxes and
assessments, or an adjusted amount pursuant to a compromise
settlement with the BIR Or other applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or
evidence of a compromise settlement with the BIR;
(u) include a valid and binding resolution of a meeting of the
debtor's stockholders to increase the shares by the required
amount in cases where the Plan contemplates an additional
issuance of shares by the debtor;
(v) state the compensation and status, if any, of the
rehabilitation receiver after the approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a
prerequisite to court assistance or intervention in the event of
any disagreement in the interpretation or implementation of
the Rehabilitation Plan.
Material Financial Commitment
In the Rehabilitation Plan
A material financial commitment becomes significant in
gauging the resolve, determination, earnestness, and good
faith of the distressed corporation in financing the proposed
rehabilitation plan. This commitment may include the
voluntary undertakings of the stockholders or the would-be
investors of the debtor-corporation indicating their readiness,
willingness, and ability to contribute funds or property to
guarantee the continued successful operation of the debtor-
corporation during the period of rehabilitation (Philbancom v.
Basic Polyprinters, 2014).
It is imperative for a distressed corporation seeking for the
rehabilitation to present material financial commitments. The
financial commitments must be firm assurances that could
convince the creditors, future investors and the general
public of its financial and operational viability. In fact, nothing
short of legally binding investment commitment/s from third
parties is required to qualify as material financial commitment.
Material Financial Commitment Must be “Material”
In Philbancom v. Basic Polyprinters (2014), the financial
commitment must be material, otherwise they will be struck
down for being insufficient as what happened in the Basic
Polyprinters case. For example, it cannot take the form of a
“dacion en pago involving an asset mortgaged to the petitioner
itself in favor of another creditor.” Neither can it be additional
“working capital to be sourced from the insurance claim” that
“appeared to be doubtful” because it “had already been
written-off” by an affiliate of the petitioning debtor. It cannot
also be conversion of “payables to officers and stockholders as
trade payables” because such conversion” was a “mere re-
classification of the liability entry and had no effect on the
shareholders’ deficit.
For a financial commitment to be considered material as
required by both the FRIA and FR Rules, it must be significant
enough as to meaningfully support the rehabilitation of
the financially distressed debtor.
As ruled in the foregoing cases, it must be such as to
demonstrate “sincere commitment” to “fund the
implementation of its rehabilitation plan.” It cannot be a mere
artifice to let the creditors finance rehabilitation by a “delay in
the payment of their claims or a considerable reduction in the
amounts thereof.”
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 157
PHILBANCOM v. BASIC POLYPRINTERS
738 SCRA 561 (2014)
Contention: Philbancom argues that Basic Polyprinters did
not present material financial commitment in rehabilitation
plan in violation of the Interim Rules. In that regard, Basic
Polyprinters made no commitment in relations to infusion of
fresh capital by its stakeholders, and presented “lopsided”
protracted repayment schedule that included the dacion en
pago involving an asset mortgaged to the Bank itself in favor
of another creditor.
Financial Commitments of Basic Polyprinters
(a) Additional ₱10 million working capital to be sourced from
the insurance claim;
(b) Conversion of the directors’ and shareholders’ deposit
for future subscription to common stock;
(c) Conversion of substituted liabilities, if any, to additional
paid-in capital to increase the company’s equity; and
(d) All liabilities (cash advances made by the stockholders)
of the company from the officers and stockholders shall be
treated as trade payables.
Held: These financial commitments were insufficient.
(1) Importance of Material Financial Commitment. - A
material financial commitment becomes significant in
gauging the resolve, determination, earnestness and good
faith of the distressed corporation in financing the proposed
rehabilitation plan. This commitment may include the
voluntary undertakings of the stockholders or the would-be
investors of the debtor-corporation indicating their
readiness, willingness and ability to contribute funds or
property to guarantee the continued successful operation of
the debtor corporation during the period of rehabilitation.
Additional ₱10 million working capital
to be sourced from the insurance claim;
It appeared to be doubtful considering that the insurance
claim had by written-off by the affiliate. A claim that has
been written-off is considered a bad debt or worthless asset
and cannot be deemed a material financial commitment for
purposes of rehabilitation.
Conversion of deposit for future subscriptions as common
stock and conversion of liabilities as trade payables;
The conversion of all deposits for future subscriptions to
common stock and the treatment of all payables to officers
and stockholders as trade payables was hardly constituting
material financial commitments. Such "conversion" of cash
advances to trade payables was, in fact, a mere re-
classification of the liability entry and had no effect on
the shareholders’ deficit.
On the other hand, we cannot determine the effect of the
"conversion" of the directors’ and shareholders’ deposits for
future subscription to common stock and substituted
liabilities on the shareholders’ deficit because their amounts
were not reflected in the financial statements.
Proposed dacion en pago was not feasible
Proposal to enter into the dacion en pago to create a source
of "fresh capital" was not feasible because the object
thereof would not be its own property but one belonging
to its affiliate, a corporation also undergoing rehabilitation.
Moreover, the negotiations (for the return of books and
magazines from Basic Polyprinters’s trade creditors) did not
partake of a voluntary undertaking because no actual
financial commitments had been made thereon.

(2) Role of the Rehabilitation Plan. - Due to the
rehabilitation plan being an indispensable requirement in
corporate rehabilitation proceedings, Basic Polyprinters was
expected to exert a conscious effort in formulating the same,
for such plan would spell the future not only for itself but
also for its creditors and the public in general. The contents
and execution of the rehabilitation plan could not be
taken lightly.
We are not oblivious to the plight of corporate debtors like
Basic Polyprinters that have inevitably fallen prey to
economic recession and unfortunate incidents in the course
of their operations. However, we must endeavor to balance
the interests of all the parties that had a stake in the success
of rehabilitating the debtors. In doing so here, we cannot
now find the rehabilitation plan for Basic Polyprinters to be
genuine and in good faith, for it was, in fact, unilateral and
detrimental to its creditors and the public.
PHILIPPINE ASSET GROWTH v. FASTECH SYNERGY
794 SCRA 625 (2016)
In this present case, the Rehabilitation Plan failed to comply
with the minimum requirements: (a) material financial
commitments to support the rehabilitation plan; and (b) a
proper liquidation analysis.
Held: (1) Lack of Material Financial Commitment to
Support the Rehabilitation Plan. - A material financial
commitment becomes significant in gauging the resolve,
determination, earnestness, and good faith of the distressed
corporation in financing the proposed rehabilitation plan.
This commitment may include the voluntary undertakings of
the stockholders or the would-be investors of the debtor-
corporation indicating their readiness, willingness, and
ability to contribute funds or property to guarantee the
continued successful operation of the debtor-corporation
during the period of rehabilitation.
In this case, respondents will not require the infusion of
additional capital as he, instead, proposed to have all
accrued penalties, charges, and interests waived, and a
reduced interest rate prospectively applied to all
respondents' obligations, in addition to the implementation
of a two (2)-year grace period. Thus, there appears to be
no concrete plan to build on respondents'
beleaguered financial position through substantial
investments as the plan for rehabilitation appears to
be pegged merely on financial reprieves. Anathema to
the true purpose of rehabilitation, a distressed corporation
cannot be restored to its former position of successful
operation and regain solvency by the sole strategy of
delaying payments/waiving accrued interests and
penalties at the expense of the creditors.
(2) “Material” Financial Commitment. - While there is a
claim that unnamed customers have made investments by
way of consigning production equipment, and advancing
money to fund procurement of various equipment intended
to increase production capacity, this can hardly be construed
as a material financial commitment which would inspire
confidence that the rehabilitation would turn out to be
successful. Case law holds that nothing short of legally
binding investment commitment/s from third parties
is required to qualify as a material financial
commitment. No such binding investment was presented.
(3) Lack of Liquidation Analysis. - The total liquidation
assets and the estimated liquidation return to the creditors,
as well as the fair market value vis-a-vis the forced
liquidation value of the fixed assets were not shown. As
such, the Court could not ascertain if the petitioning debtor's
creditors can recover by way of the present value of
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 158
payments projected in the plan, more if the debtor continues
as a going concern than if it is immediately liquidated. This
is a crucial factor in a corporate rehabilitation case, which
the CA, unfortunately, failed to address.
(4) Effect of Non-Compliance. – Failure of Rehabilitation
Plan to state any material financial commitment to support
rehabilitation, as well as to include a liquidation analysis,
render’s findings of CA unsubstantiated. It is well to
emphasize that the remedy of rehabilitation should be
denied to corporations that do not qualify under the Rules.
Neither should it be allowed to corporations whose sole
purpose is to delay the enforcement of any of the rights of
the creditors.
Consultation with Debtor and Creditors (Section 63)
If the court gives due course to the petition, the rehabilitation
receiver shall confer with the debtor and all the classes of
creditors, and may consider their views and proposals in the
review, revision or preparation of a new Rehabilitation Plan.
Proceeding on Creditor’s Approval and
Objection of Rehabilitation Plan
1. Notification by Rehabilitation Receiver (Section 64)
The rehabilitation receiver shall notify the creditor and stake
holders when rehabilitation plan is ready for their examination.
2. Convening of Creditors (Section 64)
Within 20 days from said notification, he shall convene the
creditors, either as a whole or per class, for purposes of voting
on the approval of the plan, under the following parameters:
(1) The plan deemed rejected unless approved by all
classes of creditors whose rights are adversely
modified or affected by the plan;
(2) The plan is deemed to have been approved by a
class of creditors if members of the said class holding
more than 50% of the total claims of the said class
vote in favor of the plan;
(3) Votes of the creditors shall be based solely on amount
of their respective claims based on Registry of Claims.
3. When Creditors Approve the Plan (Section 65)
If the rehabilitation plan is approved, the rehabilitation receiver
shall submit the same to the court for confirmation. Within 5
days from the receipt of the plan, the court shall so notify the
creditors with the right to obtain copies thereof, and that any
creditor may file objection thereto.
4. When Creditors Reject the Plan (Section 64)
Notwithstanding the rejection of the plan, the court may
confirm it if all the following circumstances are present:
1. Plan Complies with all requirements;
2. Rehabilitation receiver Recommends confirmation
3. Shareholders, partners, or owners of juridical debtor
Lose at least their controlling interest as a result;
4. Plan provides objecting class of creditors with a
compensation with a net present value Greater than
that which they would have received if the debtor
were under liquidation. [CRAM-DOWN CLAUSE]
BPI v. SARABIA MANOR HOTEL CORPORATION
702 SCRA 432 (2013)
Although undefined in the Interim Rules, it may be said that
the opposition of a distressed corporation’s majority creditor
is manifestly unreasonable if it counter-proposes unrealistic
payment terms and conditions which would, more likely than
not, impede rather than aid its rehabilitation. Oppositions
which push for high interest rates are generally frowned
upon in rehabilitation proceedings given that the inherent
purposes is to find way and means to minimize expense of
the distressed corporation during the rehabilitation period.

“May Confirm” the Rejected Rehabilitation Plan
Note that the rehabilitation plan is already approved, since
the petition has been given due course finding that substantial
likelihood that the debtor will be rehabilitated successfully.
Therefore, what the court need only to do is to confirm. The
approval of the court is no longer required in the sense that the
court already gave due course to the petition. This is why the
provision states “may confirm” than “may approve”.
5. Objections to the Rehabilitation Plan (Section 66)
A creditor may file a verified opposition to the plan within 20
days from the receipt of notice from the court, accompanied by
affidavits and supporting documents, based on the following:
1. The creditor’s support was induced by fraud;
2. The documents or data relied upon in the plan are
materially false or misleading; or
3. The plan is in fact not supported by the voting
creditors;
6. Hearing on the Objections (Section 67)
If objections have been submitted during the relevant period,
the court shall issue an order setting the time and date for the
hearing on the objections, which shall not be later than 10 days
from the expiration of the period to file objections, and may
rule as follows:
1. If the courts finds merit in the objection, it shall
order the rehabilitation receiver to cure the defect,
whenever feasible.
2. If the court determines that the debtor acted in bad
faith or that it is not feasible to cure the defect, the
court shall convert the proceedings into one for
liquidation of the debtor.
7. Confirmation of the Rehabilitation Plan (Section 68)
The court shall issue an order confirming the rehabilitation plan
1. If no objection are filed within the relevant period;
2. If objections are filed, the courts finds them lacking in
merit;
3. It determines that the basis of objections has been
cured; or
4. It determines that the debtor has complied with an
order to cure the objection.
The court may confirm the Rehabilitation Plan notwithstanding
unresolved disputes over claims if the plan has made adequate
provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the
contrary notwithstanding, the court shall have the power to
approve or implement the plan despite lack of approval or
objection from the owners, partners or stockholders of the
insolvent debtor;
✓ PROVIDED: The terms thereof are necessary to
restore the financial well-being and viability of the
insolvent debtor.
8. Period for Confirmation of the Plan (Section 72)
The Court has a maximum period of 1 year from the date of
the filing of the petition to confirm a rehabilitation plan. If no
plan is confirmed within said period,
✓ The proceedings may upon motion or motu proprio
converted into one for the liquidation of debtor.
9. Effect of Confirmation of the
Rehabilitation Plan (Section 69)
The confirmation of the plan shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding
upon the debtor and all persons who may be affected by it,
including the creditors, whether or not such persons have
participated in the proceedings or opposed the Rehabilitation
Plan or whether or not their claims have been scheduled;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 159
(b) The debtor shall comply with the provisions of the
Rehabilitation Plan and shall take all actions necessary to carry
out the Plan;
(c) Payments shall be made to the creditors in accordance
with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and
its creditors shall be interpreted as continuing to apply to the
extent that they do not conflict with the provisions of the
Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on creditors regardless
of whether or not the Plan is successfully implemented; and
(f) Claims arising after approval of the Plan that are otherwise
not treated by the Plan are not subject to any Suspension
Order.
Liability of General Partners (Section 70)
The approval of the Plan shall not affect the rights of creditors
to pursue actions against the general partners of a partnership
to the extent they are liable under relevant legislation for the
debts thereof.
Note: This is because in partnership, the general partners have
unlimited liability unlike in corporations. Meaning, the creditors
can collect against the personal property of the general
partners since the approval of the Rehabilitation Plan does not
negate the unlimited liability of the general partner. The
approval does not exempt personal liablity of general partner.
Determination of the Feasibility of
Proposed Rehabilitation Plan
BPI v. SARABIA MANOR HOTEL
Supra
In order to determine feasibility of a proposed rehabilitation
plan, it is imperative that a thorough examination and
analysis of the distressed corporation's financial data must
be conducted.
If the results of such examination and analysis show that
there is a real opportunity to rehabilitate the corporation in
view of the assumptions made and financial goals stated in
the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation
court should not hesitate to allow the corporation to operate
as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan.
On the other hand, if the results of the financial examination
and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived
and that liquidation would, in fact, better subserve the
interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. Rehabilitation court may
convert proceedings into one for liquidation.
Characteristics of Economically Feasible Rehabilitation
Plan Opposed to Infeasible Rehabilitation Plan
VIVA SHIPPING LINES v. KEPPEL PHILLIPINES
Supra
Professor Stephanie V. Gomez of the University of the
Philippines College of Law suggests specific characteristics
of an economically feasible rehabilitation plan:
a. The debtor has assets that can generate more cash if used
in its daily operations than if sold.

b. Liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain daily
operations.
c. The debtor has a definite source of financing for the
proper and full implementation of a Rehabilitation Plan that
is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow
that the distressed corporation will obtain from rehabilitating
its assets and operations. A corporation's assets may be
more than its current liabilities, but some assets may be in
the form of land or capital equipment, such as machinery or
vessels. Rehabilitation sees to it that these assets generate
more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics
of a rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and
goals;
(c) speculative capital infusion or complete lack thereof for
the execution of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full
depreciation or fully depreciated.
In addition to the tests of economic feasibility, Professor
Stephanie V. Gomez also suggests that the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on
rehabilitation that provides for better present value
recovery for its creditors.
Present value recovery acknowledges that, in order to
pave way for rehabilitation, the creditor will not be paid by
the debtor when the credit falls due. The court may order a
suspension of payments to set a rehabilitation plan in
motion; in the meantime, the creditor remains unpaid. By
the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past
has a different value in the future. It is unfair if the creditor
merely receives the face value of the debt. Present value
of the credit takes into account the interest that the
amount of money would have earned if the creditor were
paid on time.
Trial courts must ensure that the projected cash flow from
a business' rehabilitation plan allows for the closest
present value recovery for its creditors. If the projected
cash flow is realistic and allows the corporation to meet all
its obligations, then courts should favor rehabilitation over
liquidation. However, if the projected cash flow is unrealistic,
then courts should consider converting the proceedings into
that for liquidation to protect the creditors.
PHILIPPINE ASSET GROWTH v. FASTECH SYNERGY
Supra
Rehabilitation Plan and Financial Documents
Fail to Show Feasibility of Rehabilitation
A perusal of the 2009 audited financial statements shows
that respondents' cash operating position was not even
enough to meet their maturing obligations. Notably,
their current assets were materially lower than their current
liabilities, and consisted mostly of advances to related
parties.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 160
Moreover, the independent auditors recognized the
absence of available historical or reliable market
information to support the assumptions made by the
management to determine the recoverable amount (value
in use) of respondents' properties and equipment.
Verily, respondents' Rehabilitation Plan should have
shown that they have enough serviceable assets to be
able to continue its business operation. In fact, as opposed
to this objective, the revised Rehabilitation Plan still requires
"front load Capex spending" to replace common equipment
and facility equipment to ensure sustainability of capacity
and capacity robustness, further sacrificing respondents'
cash flow. In addition, the Court is hard-pressed to see the
effects of the outcome of the streamlining of respondents'
manufacturing operations on the carrying value of their
existing properties and equipment.
In fine, the Rehabilitation Plan and the financial documents
submitted in support thereof fail to show the feasibility of
rehabilitating respondents' business.
9. Termination of Proceedings
Termination of Proceedings (Section 74)
The rehabilitation proceedings shall, upon motion of any
stakeholder or the rehabilitation receiver by order of the court
either declaring
1. Successful implementation of Rehabilitation Plan, or
2. Any of the following cases of Failure of Rehabilitation
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor,
there is no substantial likelihood that the debtor can be
rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by
the court but in the implementation thereof, the debtor fails
to perform its obligations thereunder or there is a failure
to realize the objectives, targets or goals set forth therein,
including the timelines and conditions for the settlement of the
obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the
Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the
rules of procedure.
In Case of Breach or Failure of Plan (Section 74)
Upon a breach of, or upon a failure of the Rehabilitation Plan
the court, upon motion by an affected party may:
(1) Issue an order directing that the breach be cured within
a specified period of time, failing which the proceedings may
be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit
amendments to the Rehabilitation Plan, the approval of which
shall be governed by the same requirements for the approval
of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent
with the present regulation, other applicable law and the best
interests of the creditors; or

(5) Enforce the applicable provisions of the Rehabilitation Plan
through a writ of execution.
Effects of Termination (Section 75)
Termination of the proceedings shall result in the following:
a. Discharge of the rehabilitation receiver subject to
his submission of a final accounting; and
b. Lifting of Stay Order and any other holding in
abeyance any action for the enforcement of a claim
against the debtor.
If termination of proceedings is due to failure of rehabilitation
or dismissal of petition for other than technical grounds
✓ Proceedings shall be immediately converted to
liquidation proceedings.
PRE-NEGOTIATED REHABILITATION
Pre-Negotiated Rehabilitation
The debtors and 2/3 of the creditors have already agreed on
the pre-negotiated rehabilitation plan, meaning that instead of
filing and having the court convene the creditors, the parties
have opted to negotiate prior to presenting the case.
1. Petition by Insolvent Debtor
a. The Petition and Requisite
Creditors’ Endorsement (Section 76)
It is the insolvent debtor who, by itself or jointly with any of
the creditors, may file a verified petition with the court for the
approval of a pre-negotiated Rehabilitation Plan.
Which has been endorsed or approved by creditors under the
following parameters: Such endorsing or approving creditors
must hold at least 2/3 of the total liabilities of the debtor,
which shall include:
(a) Secured creditors holding more than 50% of the total
secured claims of the debtor; and
(b) Unsecured creditors holding more than 50% of the
total unsecured claims of the debtor.
b. Form and Contents of Petition (Section 76)
The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the
names of at least three (3) qualified nominees for
rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and
a report on the provisioning of funds to account for
appropriate payments should any such claims be ruled
valid or their amounts adjusted.
2. Issuance of Order
Issuance of Order (Section 77)
Within five (5) working days, and after determination that the
petition is sufficient in form and substance, the court shall issue
an Order which shall:
(a) identify the debtor, its principal business of activity/ies and
its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground/s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of
general circulation in the Philippines once a week for at least
two (2) consecutive weeks, with the first publication to be
made within seven (7) days from the time of its issuance;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 161
(e) direct the service by personal delivery of a copy of the
petition on each creditor who is not a petitioner holding at
least ten percent (10%) of the total liabilities of the
debtor, as determined in the schedule attached to the petition,
within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan
are available for examination and copying by any interested
party;
(g) state that creditors and other interested parties opposing
the petition or Rehabilitation Plan may file their objections
or comments thereto within a period of not later than twenty
(20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the
Plan; and
(i) include Suspension or Stay Order as described in this Act.
Note: It has the similar effects with a Commencement Order in
Court Supervised Rehabilitation Proceedings.
3. Approval of the Plan
a. Period for Approval of Rehabilitation Plan (Section 81)
The court shall have a maximum period of 120 days from the
date of filing of the petition to approve the Rehabilitation Plan.
If the court fails to act within the said period,
✓ The Rehabilitation plan shall be deemed approved,
and the court shall issue a certification to that effect.
b. Approval of the Plan (Section 78)
Within ten (10) days from the date of the second publication of
the Order, the court shall approve the Rehabilitation Plan
unless a creditor or other interested party submits an
objection to it in accordance with the next succeeding section.
c. Effect of Approval (Section 82)
Approval of a Plan under this chapter shall have the same legal
effect as confirmation of a plan under Section 69 under Court
Supervised Rehabilitation Proceedings.
OUT-OF-COURT OR INFORMAL RESTRUCTURING
AGREEMENTS OR REHABILITATION PLANS
Recognition of Out-of-Court or
Informal Agreements (Section 83)
An out-of-court or informal restructuring agreement or
Rehabilitation Plan that meets the minimum requirements
prescribed in this chapter is hereby recognized as consistent
with the objectives of this Act.
Minimum Requirements (Section 84)
For an out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan to qualify under this chapter,
it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least
sixty-seven (67%) of the secured obligations of the
debtor;
(c) It must be approved by creditors representing at least
seventy-five percent (75%) of the unsecured obligations
of the debtor; and
(d) It must be approved by creditors holding at least eighty-
five percent (85%) of the total liabilities, secured and
unsecured, of the debtor.

Pre-Negotiated Out-of-Court or Informal
Rehabilitation Rehabilitation
Endorsed or approved by It must be approved by
creditors who hold at least creditors holding at least
2/3 of the total liabilities 85% of the total
of the debtor. liabilities, secured and
unsecured, of the debtor.
At least 50% of the At least 67% of the
secured creditors secured creditors
At least 50% of the At least 75% of the
unsecured creditors unsecured creditors
Standstill Period (Section 85)
The standstill period refers to the period agreed upon by the
debtor and its creditors to enable them to negotiate and enter
into an out-of-court or information restructuring/workout
agreement or rehabilitation plan. The standstill agreement may
include provisions identical with or similar to the legal effects
of a commencement order [FR Rules, Section 4(q)].
A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or Rehabilitation
Plan contemplated herein shall be effective and enforceable not
only against the contracting parties but also against the other
creditors: Provided, That
(a) such agreement is approved by creditors
representing more than fifty percent (50%) of the
total liabilities of the debtor;
(b) notice thereof is publishing in a newspaper of
general circulation in the Philippines once a week for
two (2) consecutive weeks; and
(c) the standstill period does not exceed one hundred
twenty (120) days from the date of effectivity.
The notice must invite creditors to participate in the negotiation
for out-of-court rehabilitation or restructuring agreement and
notify them that said agreement will be binding on all creditors
if the required majority votes prescribed in Section 84 of this
Act are met.
Cram Down Effect (Section 85)
A restructuring/workout agreement or Rehabilitation Plan that
is approved pursuant to an informal workout framework
referred to in this chapter shall have the same legal effect
as confirmation of a Plan under Section 69 hereof.
a. The notice of the Rehabilitation Plan or restructuring
agreement or Plan shall be published once a week
for at least three (3) consecutive weeks in a
newspaper of general circulation in the Philippines.
b. The Rehabilitation Plan or restructuring agreement
shall take effect upon the lapse of fifteen (15)
days from date of last publication of notice thereof.
“Cram-Down” Clause
This provision, incorporated in the FRIA from American cases,
is necessary to curb the majority creditors’ natural tendency to
dictate their own terms and conditions to the rehabilitation,
absent due regard to the greater long-term benefit of all
stakeholders. Otherwise stated, it forces the creditors to
accept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but
incomplete recovery.
VICTORIA AQUINO v. PACIFIC PLANS
744 SCRA 480 (2014)
The “cram-down” power of the Rehabilitation Court has long
been established. The court may approve a rehabilitation
plan in opposition of the creditors, holding a majority of
the total liabilities of the debtor, if in its judgment, the
rehabilitation of the debtor is feasible, and the opposition is
manifestly unreasonable.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 162
Petitioner’s outright censure of the concept of the cram-
down power of the rehabilitation court cannot be
countenanced. To adhere to the reasoning of the petitioner
would be a step-backward – a futile attempt to address an
outdated set of challenges.
It is undeniable that there is a need to move to regime of
modern restructuring, cram-down and court
supervision in the matter of corporate rehabilitation in
order to address the greater interest of the public. This is
clearly manifested in Section 64.
While the voice and participation of creditors is crucial in
determination of the viability of the rehabilitation plan, as t
hey stand to benefit or suffer in the implementation thereof,
the interests of all stakeholders is the ultimate and prime
consideration. Thus, while we recognize the predisposition
of the planholders in vacillating on the enforcement of MRP,
since the terms and conditions stated therein have been
fundamentally changed from those stated in Rehabilitation
Plan, the MRP cannot be considered an abrogation of rights
to the planholders/creditors.
Here, petitioner’s is in fact restructured in a way that would
allow respondent to revive its financial health while offering
optimal returns to its clients. It is undisputable that the
corporation is in the process of corporate rehabilitation
precisely because it is undergoing financial distress.
Petitioner cannot expect the contracted amount owed by the
respondent because a modification of the terms and
conditions of the contract is certainly foreseeable and
reasonable in a corporate rehabilitation case.
It is an established principle in rehabilitation proceedings
that rehabilitation courts have the cram down power to
approve rehabilitation plans even over the objections of
creditors, which cram down power shall nonetheless bind
the latter. In fact, the CARR is given the authority to “notify
counterparties and the court as to contracts that the debtor
has decided to continue to perform or breach. A fortiori, the
mere impairment of contracts is not a justification to
question the modification of a rehabilitation plan because
the very nature of rehabilitation proceedings
sometimes necessitates such a course of action.
Court Assistance (Section 89)
The insolvent debtor and/or creditor may seek court assistance
for the execution or implementation of a Rehabilitation Plan
under this Chapter, under such rules of procedure as may be
promulgated by the Supreme Court.
LIQUIDATION OF INSOLVENT
JURIDICAL DEBTORS
Kinds of Debtors
1. Juridical Debtors
a. Voluntary Liquidation [Section 90]
b. Involuntary Liquidation [Section 91]
2. Individual Debtors
a. Suspension of Payments [94-102]
b. Voluntary Liquidation [103-104]
c. Involuntary Liquidation [105-110]
1. Voluntary Liquidation of Juridical Debtors
a. Debtor-Initiated Liquidation Proceedings
An insolvent debtor shall file a verified petition for liquidation
with the court;
(a) Which shall establish the insolvency of the debtor; and
(b) Shall contain, whether as an attachment or as part of
the body of the petition;
1. Schedule of the debtor’s assets and liabilities,
including a list of creditors
 NOTES ON CORPORATION LAW | RM SANTIAGO 163

2. Inventory of all its assets including receivables c. Action on the Petition/Motion (Section 91)
and claims against third parties; and If the petition or motion is sufficient in form and substance, the
3. Names of at least three (3) nominees for court shall issue an Order:
Liquidator
(1) directing the publication of the petition or motion in a
b. Conversion from Rehabilitation Proceedings newspaper of general circulation once a week for two (2)
At any time during the pendency of court-supervised or pre- consecutive weeks; and
negotiated rehabilitation proceedings, the debtor may also
initiate liquidation proceedings by filing a verified motion in the (2) directing the debtor and all creditors who are not the
same rehabilitation court to convert the proceedings into petitioners to file their comment on the petition or motion
liquidation proceedings. within fifteen (15) days from the date of last publication.

Verified motion shall contain/set forth the same matters as
those required in an original petition for liquidation, and state
that debtor is seeking immediate dissolution and termination
of its existence.
c. Issuance of Liquidation Order
If the petition or motion, as the case may be, is sufficient in
form and substance, court shall issue a Liquidation Order.
If, after considering the comments filed, the court determines
that the petition or motion is meritorious, it shall issue the
Liquidation Order mentioned in Section 112 hereof.
d. Powers of the SEC (Section 93)
Liquidation provisions shall not affect the regulatory powers of
the SEC with respect to dissolution/liquidation proceeding
initiated and heard before it.

2. Involuntary Liquidation of Juridical Debtors INSOLVENCY OF INDIVIDUAL DEBTORS

a. Creditor-Initiated Liquidation Proceedings. – Three (3)
1. Suspension of Payments
or more creditors, the aggregate of whose claims are at least
(whichever is higher)
Note: Corporate Suspension of Payment Proceedings no longer
• P1,000,000; or
exists as a separate proceeding from rehabilitation proceedings
• 25% of debtor’s subscribed capital stock or partner’s
with the FRIA recognizing that only suspension of payment
contributions;
proceedings for individual debtors.
May apply for and seek the liquidation of an insolvent debtor
a. Petition (Section 94)
by filing a petition for liquidation with the court, showing that:
An individual debtor who
(a) There is no Genuine issue of fact or law on petitioner’s
1. Possession sufficient property to cover all his debts;
claim/s;
2. But foreseeing the impossibly of meeting them when
(b) Such clam/s that are due and demandable and that
they respectively fall due
payments there have not been made for at least 180
days, or that due debtor has failed generally to meet
Files a verified petition to be declared in the state of
its liabilities as they fall due;
suspension of payments by the court of the province/city in
(c) No substantial likelihood debtor may be rehabilitated
which he has resided for 6 months prior to filing of his petition,
(Section 91)
attaching thereto:
a. Schedule of Debts and Liabilities;
b. Conversion of Rehabilitation Proceeding by Creditors
b. Inventory of Assets; and
At any time during the pendency of or after a rehabilitation
c. Proposed Agreement with Creditors.
court-supervised or pre-negotiated rehabilitation proceedings,
three (3) or more creditors (whose claims fulfill the same
b. Action on the Petition (Section 95)
requisites as those of an original creditor intitated liquidation
Within five (5) working days from the filing, and if the court
proceedings), may also initiate liquidation proceedings by filing
finds the petition sufficient in form and substance, it shall issue
a motion in the same rehabilitation court to convert the
an Order:
proceedings into liquidation proceedings. The motion shall be
verified, shall contain or set forth the same matters required in
[a] Calling Creditors’ Meeting of creditors in Schedule:
the preceding paragraph, and state that the movants are
1. Designating the date, time and place, which shall not
seeking the immediate liquidation of the debtor.
be less than 15 days nor more than 40 days from the
date thereof;
c. Conversion by Court (Section 92)
2. Appointing commissioner to preside over the meeting;
During the pendency of the court supervised or pre-negotiated
rehabilitation proceedings, the court may order the conversion
[b] Directing the
of rehabilitation proceedings into liquidation proceedings
1. Publication of order in newspaper of general
circulation in the province/city where filed for once a
1. Upon determination on the Report of the rehabilitation
week for 2 consecutive weeks with first publication
receiver that there is need to convert the proceedings
being made within 7 days from issuance of order.
into one for liquidation if debtor is insolvent and there
2. Clerk of court to cause the sending of a copy of the
is no substantial likelihood that debtor will be
Order by registered mail and postage prepaid, to all
successfully rehabilitated (Section 25[c]);
named creditors;
2. Failure to have rehabilitation confirmed within one (1)
3. Named creditors to prepare and present written
year from the date of filing of petition (Section 72);
evidence of their claims before the scheduled
3. If Termination of proceedings is due to failure of
creditors’ meeting.
rehabilitation or dismissal of petition other than
technical grounds (Section 75); and
[c] Forbidding the Individual Debtor, so long as suspension
4. Upon petition by the debtor under Voluntary
proceedings are pending, from:
liquidation proceedings (Section 90); and
1. Selling, transferring, encumbering and disposing in
5. Any other time upon Recommendation of the
any manner of his property; EXCEPT: those used in
rehabilitation receiver that the rehabilitation shall not
the ordinary operations of commerce or of industry;
be feasible (Section 92).

From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law

2. Making any payment outside of the necessary or
legitimate expenses of his business or industry.
c. Actions Suspended (Section 96)
Upon motion filed by the Individual Debtor, the court may issue
an order suspending any pending execution against the
individual debtor;
✓ EXCEPT: properties held as security by secured
creditors shall not be subject of suspension order.
EFFECTS OF ISSUANCE OF SUSPENSION ORDER:
[a] Order shall lapse after three (3) months without the
proposed agreement being accepted by creditors, or when such
agreement is denied;
[b] No creditor shall sue or institute proceedings to collect his
claim from the time of the filing of the petition and for as long
as the proceedings remain pending;
EXCEPT:
1. Secured creditors; and
2. Claims for personal labor, maintenance, expense of
last illness and funeral of the wife or children incurred
in 60 days immediately prior to filing of the petition
2. Voluntary Liquidation in Insolvency
a. Application (Section 103)
An individual debtor:
• Whose properties are not sufficient to cover his
liabilities; and
• Whose debts exceed P500,000
May apply to be discharged from his debts and liabilities by
filing a verified petition with the court of the province/city
where he has resided for six (6) months prior to the filing of
such petition, which shall contain the:
• Schedule of Debts and Liabilities; and
• Inventory of Assets.
b. Issuance of the Liquidation Order (Section 104)
If the court finds the petition sufficient in form and substance,
it shall, within five (5) working days issue Liquidation Order.
3. Involuntary Liquidation in Insolvency
a. Petition (Section 105)
Any creditor or group of creditors.
• With a claim or with aggregate claims at least P500K;
• The individual debtor committed an “act of insolvency”
May file a verified petition for liquidation with the court of the
province/city in which the individual debtor resides. The
petitioning creditors/s shall post a bond as court shall direct.
b. Acts of Insolvency (Section 105)
The following shall be considered acts on insolvency and the
petition for liquidation shall set forth or allege at least one of
such acts, to wit:
(a) That such person is about to depart or has departed from
the Republic of the Philippines, with intent to defraud his
creditors;
(b) That being absent from the Republic of the Philippines, with
intent to defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal
process for the purpose of hindering or delaying the liquidation
or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to
avoid its being attached or taken on legal process;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 164
(e) That he has suffered his property to remain under
attachment or legal process for three (3) days for the purpose
of hindering or delaying the liquidation or of defrauding his
creditors;
(f) That he has confessed or offered to allow judgment in favor
of any creditor or claimant for the purpose of hindering or
delaying the liquidation or of defrauding any creditors or
claimant;
(g) That he has willfully suffered judgment to be taken against
him by default for the purpose of hindering or delaying the
liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken
on legal process with intent to give a preference to one or more
of his creditors and thereby hinder or delay the liquidation or
defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or
transfer of his estate, property, rights or credits with intent to
hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any
payment, gift, grant, sale, conveyance or transfer of his estate,
property, rights or credits;
(k) That being a merchant or tradesman, he has generally
defaulted in the payment of his current obligations for a period
of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after
demand, to pay any moneys deposited with him or received by
him in a fiduciary; and
(m) That an execution having been issued against him on final
judgment for money, he shall have been found to be without
sufficient property subject to execution to satisfy the judgment.
4. Liquidation Order
Effects of the Liquidation Order (Section 113)
Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor,
except those that may be exempt from execution, shall be
deemed vested in the liquidator or, pending his election or
appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated
and/or breached, unless the liquidator, within ninety (90)
days from the date of his assumption of office, declares
otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured
claim shall be allowed. Such actions already pending will be
transferred to the Liquidator for him to accept and settle or
contest.
If the liquidator contests or disputes the claim, the court shall
allow, hear and resolve such contest except when the case is
already on appeal.
In such a case, the suit may proceed to judgment, and any
final and executor judgment therein for a claim against the
debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a
period of one hundred eighty (180) days.
 NOTES ON CORPORATION LAW | RM SANTIAGO 165

Rehabilitation Liquidation FINANCIAL LIQUIDATION AND SUSPENSION OF

Commencement Order Liquidation Order PAYMENTS RULES OF PROCEDURE FOR
Rehabilitation refers to the Liquidation is the INSOLVENT DEBTORS
restoration of the debtor to distribution of assets and
(FLSP RULES)
a condition of successful properties of the insolvent
operation and solvency. to satisfy claims and
liabilities. A.M. No. 15-04-06-SC
Corporations have to Corporation reserve their
maintain their assets to assets in order to sell them Nature of Proceedings (Section 3)
continue business and proceeds are The proceedings [Liquidation and Suspension of Payments]
operation. distributed among creditors. shall be in rem. Jurisdiction is acquired over all persons
Rehabilitation allows the Liquidation necessarily affected by the proceedings:
corporate entity to continue brings dissolution or
and operate. termination of juridical [1] Publication of Liquidation Order in voluntary liquidation
existence. proceedings of juridical debtors
Rehabilitation proceedings There is no out-of-court
can be made out-of-court. liquidation proceedings. [2] Publication of Petition or Motion in involuntary liquidation
Rehabilitation receiver, as a Legal title to and control of proceedings of juridical debtors
general rule, is not given all the assets of the debtor,
the power to take over the except those that may be [3] Service of summons for the debtor and publication of
management of the exempt from execution, Liquidation Order for all others, in involuntary proceedings of
insolvent corporation, shall be deemed vested in individual debtor
unless directed by the the liquidator.
court. [4] Publication of the Suspension of Payments Order in case of
suspension of payments proceedings.
CROSS-BORDER INSOLVENCY PROCEEDINGS The proceedings shall be summary and non-adversarial in
nature.
1. Adoption of UNCITRAL Model Law
on Cross-Border Insolvency Prohibited Pleadings (Section 3)
FRIA expressly adopts as a part thereof, the Model Law on [a] Motion to Dismiss
Cross-Border Insolvency of the United Nations Center for [b] Motion for a Bill of Particulars
International Trade and development; [c] Petition for Relief
[d] Motion for Extension
BUT SUBJECT TO: [e] Motion for Postponement and Other Motion of Similar Intent
1. Section 136 rule on the power of a regulatory agency [f] Reply
or self-regulatory organization to liquidate trade- [g] Rejoinder
related claims of clients or customers of a securities [h] Intervention; and
market participant, which for purposes of investor [i] Any pleading or motion similar to, or of like effect.
protection, have absolute priority over other claims
of whatever nature or kind, insofar as trade-related For stated and fully supported and compelling reasons, the
assets are concerned; court may allow the filing of motions for extension or that for
2. The SC Rules of Procedure on the Matter postponement, provided, the same is under oath.

2. Cross-Border Insolvency Jurisdiction Conversion by the Court of Rehabilitation Proceedings

A foreign main proceeding means a foreign proceeding
taking place in the State where the debtor has the centre of
main interests.
The centre of main interests rule is to be determined in the
light of the facts. There is regard not only to what the debtor
is doing but also to what the debtor would be perceived to be
doing. There requires an element of permanence.
into Liquidation Proceedings (Rule 2, Section 9)
After notice and hearing, the court where
rehabilitation proceedings are pending may also order the
conversion of rehabilitation proceedings into liquidation
proceedings in those cases authorized by law, or at any other
time upon the recommendation of the rehabilitation receiver or
management committee that the rehabilitation of the debtor is
no longer feasible. In such case, the FLSP rules shall apply.

The centre of main interests should correspond to the place Liquidation Order (Rule 4, Section 2)
where the debtor conduct the administration of the debtor’s The Liquidation Order shall:
interests on a regular basis and that is therefore ascertainable
by third parties. (a) declare the debtor insolvent;

Article 16(3) of the UNCITRAL provides that, in the absence
of proof of the contrary, the debtor’s registered office is
presumed to be the centre of the debtor’s main interest.
The center of main interest result has a presumption that any
international business will have a Centre of Main Interest
(COMI) and the presumption is where the head office shall be.
The COMI shall be the principal jurisdiction.
Basis of the Rule: Modified Universalism
‘Modified universalism’, as it is understood in the United States,
implies that judges should presumptively defer to the law of
the foreign insolvency proceeding (lex concursus).
(b) order the liquidation of the debtor and, in the case of a
juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the
property of the debtor, except those that may be exempt from
execution;
(d) order the publication of the Liquidation Order, together
with the petition, or motion to convert the rehabilitation
proceedings into liquidation proceedings, if any, in a newspaper
of general circulation in the Philippines once a week for two (2)
consecutive weeks;

From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law

(e) direct payments of any claims and conveyance of any
property due the debtor to the liquidator;
(f) prohibit payments and the transfer of any property by the
debtor;
(g) direct all creditors to file their claims with the liquidator
not later than five (5) days from the time the liquidator
takes his oath of office, furnishing a copy thereof to the court;
(h) authorize the payment of administrative expenses as
they become due;
(i) state that the debtor and creditors who are not petitioner/s
may submit the names of other nominees to the position of
liquidator; and
(j) set the case for hearing for the election and appointment of
the liquidator, which date shall not be less than thirty (30) days
nor more than forty-five (45) days from the date of the last
publication.
Effects of the Liquidation Order (Rule 4, Section 3)
Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor,
except those that may be exempt from execution, shall be
deemed vested in the liquidator or, pending his election or
appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated
and/or breached, unless the liquidator, within ninety (90) days
from the time he takes his oath of office, declares otherwise
and the contract counter-party agrees;
(d) no separate action for the collection of an unsecured claim
shall be allowed. Actions already pending will be transferred to
the liquidator for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court shall allow,
hear, and resolve such contest, except when the case is already
on appeal. In such a case, the suit may proceed to judgment,
and any final and executory judgment therein for a claim
against the debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of
one hundred eighty (180) days from the date of the order.
Rights of Secured Creditors (Rule 4, Section 4)
The Liquidation Order shall not affect the right of a secured
creditor to enforce his lien in accordance with the applicable
contract or law,
✓ UNLESS: he waives his right.
YNGSON, JR. v. PHILIPPINE NATIONAL BANK
678 SCRA 447 (2012)
Facts: On November 16, 2000, Yngson with the SEC a
motion to nullify the auction sale. Petitioner posited that all
actions against companies which are under liquidation, like
ARCAM, are suspended because liquidation is a continuation
of the petition for suspension proceedings. Petitioner argued
that the prohibition against foreclosure subsisted
during liquidation because payment of all of ARCAM’s
obligations was proscribed except those authorized by the
Commission.
Moreover, petitioner asserted that the mortgaged assets
should be included in the liquidation and the proceeds
shared with the unsecured creditors.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 166
In its Opposition, PNB asserted that neither Presidential
Decree (P.D.) No. 902-A nor the SEC rules prohibits secured
creditors from foreclosing on their mortgages to satisfy the
mortgagor’s debt after the termination of the rehabilitation
proceedings and during liquidation proceedings.
Held: In Rizal Commercial Banking Corporation v.
Intermediate Appellate Court, we held that if rehabilitation
is no longer feasible and the assets of the corporation are
finally liquidated, secured creditors shall enjoy
preference over unsecured creditors, subject only to the
provisions of the Civil Code on concurrence and preference
of credits. Creditors of secured obligations may pursue their
security interest or lien, or they may choose to abandon the
preference and prove their credits as ordinary claims.
The right to foreclose such mortgage is merely suspended
upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order
by the trial court. However, the creditor-mortgagee may
exercise his right to foreclose the mortgage upon the
termination of the rehabilitation proceedings or upon the
lifting of the stay order.
It is worth mentioning that under Republic Act No. 10142,
otherwise known as Financial Rehabilitation and Insolvency
Act (FRIA) of 2010, the right of a secured creditor to
enforce his lien during liquidation proceedings is
retained. In this case, PNB elected to maintain its rights
under the security or lien; hence, its right to foreclose the
mortgaged properties should be respected.
The Liquidator
Qualification (Rule 4, Section 8)
The liquidator shall:
(a) be a citizen of the Philippines or a resident thereof for six
months immediately preceding his nomination;
(b) be of good moral character and with acknowledged
integrity, impartiality and independence;
(c) have the requisite knowledge of insolvency and other
relevant commercial laws, rules and procedures, as well as the
relevant training and/or experience that may be necessary to
enable him to properly discharge the duties and obligations of
a liquidator; and
(d) have no conflict of interest: Provided, that such conflict of
interest may be waived, expressly or impliedly, by a party who
may be prejudiced thereby.
Election of Liquidator (Rule 4, Section 9)
The creditors entitled to vote will elect the liquidator in open
court and the basis of quorum shall be at least a majority of
the total claims entitled to vote.
Court-Appointed Liquidator (Rule 4, Section 10)
The court may appoint the liquidator if:
1. No quorum on date of election
2. Creditors fail or refuse to elect liquidator
3. Liquidator fails to qualify
4. A vacancy occurs for any reason
The liquidator shall take an oath and file a bond. (Sec. 11)
Powers, Duties and Responsibilities (Rule 4, Section 12)
The liquidator shall be deemed an officer of the court with the
principal duty of preserving and maximizing the value and
recovering the assets of the debtor, with the end in view of
liquidating them and discharging to the extent possible all the
claims against the debtor.

The powers, duties and responsibilities of the liquidator shall
include, but not be limited to, the following:
(a) to sue and recover all the assets, debts and claims,
belonging or due to the debtor;
(b) to take possession of all the property of the debtor,
except property exempt by law from execution;
(c) to sell, with the approval of the court, any property of the
debtor under his possession or control;
(d) to redeem all mortgages and pledges, and satisfy any
judgment which may constitute an encumbrance on any
property sold by him;
(e) to settle all accounts between the debtor and his
creditors, subject to the approval of the court;
(f) to recover any property, or its value, fraudulently
conveyed by the debtor;
(g) to recommend to the court the creation of a creditors'
committee which will assist him in the discharge of his
functions, and
✓ which shall be vested with powers as the court deems
just, reasonable and necessary; and
(h) upon approval of the court, to engage the services of
persons with specialized skills or training as may be necessary
and reasonable to assist him in the discharge of his duties.
Such persons or professionals shall be deemed employees or
independent contractors of the liquidator and shall possess the
same qualifications as the liquidator.
In addition to the rights and duties of a rehabilitation receiver
under Section 31, Chapter II (C) of the FRIA,
insofar as they are applicable to liquidation proceedings, the
liquidator, shall have the right and duty to take all
reasonable steps to manage and dispose of the debtor's
assets with a view towards maximizing the proceeds
therefrom, to pay creditors and stockholders, and to terminate
the debtor's legal existence.
Determination of Claims
Right to Set-Off (Rule 4, Section 18)
If the debtor and creditor are mutually debtor and creditor of
each other, one debt shall be set off against the other and only
the balance, if any, shall be allowed in the liquidation
proceedings.
Opposition or Challenge to Claims (Rule 4, Section 19)
Within thirty (30) days from the expiration of the period for the
filing of claims, a creditor, debtor, or other interested party
may submit to the court an opposition or challenge to any claim
or claims, serving a certified copy on the liquidator and the
creditor holding the challenged claim.
Upon the expiration of the period, the liquidator shall submit to
the court the registry of claims containing the undisputed
claims that have not been subject to challenge.
Such claims shall become final upon the filing of the register
and may be subsequently set aside only on grounds of fraud,
accident, mistake or excusable neglect.
Submission of Disputed Claims to Court (Section 20)
The liquidator shall resolve disputed claims and submit his
findings thereon to the court for final approval. The liquidator
may disallow claims, subject to final approval of the court.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 167
Liquidation Plan
The Liquidation Plan (Rule 4, Section 23)
Within three (3) months from his assumption into office, the
liquidator shall submit a Liquidation Plan to the court. The
Liquidation Plan shall, as a minimum, enumerate all the assets
of the debtor not exempt from execution, a list of all creditors
and their claims which have been duly proved as shown in the
final registry of claims, and a proposed mode and schedule of
liquidation of the assets and payment of the claims. The
Liquidation Plan shall make provisions for, among others,
disputed claims and any action for rescission or nullity of
certain transactions.
The exempt property shall be set apart upon motion, and after
notice and hearing. (Section 24)
The rule on concurrence and preference of credits shall be
observed unless a preferred creditor voluntarily waives his
preferred rights. (Section 25)
Sale of Assets in Liquidation (Section 26)
With the approval of the court, the liquidator may sell, transfer
or otherwise dispose of the unencumbered assets of the debtor
and convert the same into money. The sale, transfer or
disposition shall be made at public auction.
WHEN PRIVATE SALE ALLOWED: However, a private sale,
transfer or disposition may be allowed with the approval of the
court if (a) the goods to be sold are of a perishable nature,
or are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or (b) the
private sale, transfer or disposition is for the best interest of
the debtor and his creditors.
Manner of Implementing Liquidation Plan (Section 27)
The liquidator shall implement the Liquidation Plan as approved
by the court in an order duly issued therefor. Payments shall
be made to creditors only in accordance with the provisions of
the Plan.
Final Report of the Liquidator (Section 28)
When all the property of the debtor not exempt from execution
have been realized and their proceeds distributed to the
creditors in accordance with the Liquidation Plan,
the liquidator shall submit
✓ his final report to the court,
✓ together with the final accounting of his
administration and
✓ a recommendation for the termination of the
proceedings, furnishing all the creditors and other
interested parties with copies thereof.
Termination of Proceedings (Section 29)
If, after notice and hearing, the court is satisfied with the final
report, it shall
✓ issue an order approving the same and
✓ directing the removal of the name of the juridical
debtor from the register of legal entities of the SEC
and other government agencies, or
✓ discharging the individual debtor from his liabilities
included in the Liquidation Plan, as the case may be.
In the same order discharging the individual debtor from his
liabilities, the court shall state that the proceedings are
terminated.
However, in the case of a juridical debtor registered with the
SEC, the court shall issue an order terminating the proceedings
only upon receipt of evidence showing that the debtor has been
removed from the registry of legal entities at the SEC.

[E] SECURITIES REGULATION CODE
REPUBLIC ACT NO. 8799
Blue Sky Selling: The Need to Regulate
Section 1. Title. – This shall be known as “The Securities
Regulation Code.”
“Blue-Sky Selling”
The term “blue sky law” is said to have originated in the early
1900s, when a Kansas Supreme Court justice declared his
desire to protect investors from speculative ventures that had
no more basis than so many feet of ‘blue sky.’
Technically, one is selling a piece of blue sky as the investor
does not have any concrete assurance of return of investment.
Thus, the SRC has been enacted to regulate the issuance and
trading of equity securities and debt securities in Philippines.
Section 2. State Policy. – The State shall establish a
✓ socially conscious, free market that regulates itself,
✓ encourage the widest participation of ownership in
enterprises,
✓ enhance the democratization of wealth,
✓ promote the development of the capital market,
✓ protect investors,
✓ ensure full and fair disclosure about securities,
✓ minimize if not totally eliminate insider trading and
other fraudulent or manipulative devices and practices
which create distortions in the free market.
To achieve these ends, this Securities Regulation Code is
hereby enacted.
International Organization of
Securities Commission (IOSCO)
The IOSCO is an association of organizations that regulate the
world’s securities and futures markets. Members are typically
primary securities and/or futures regulators in a national
jurisdiction or the main financial regulator from each country.
Its mandate is to:
✓ [1] Develop, implement, and promote high standards
of regulations to enhance investor protection and
reduce systemic risk;
✓ [2] Share information with exchanges and assist them
with technical and operational issues;
✓ [3] Establish standards toward monitoring global
investment transactions across borders and markets.
Regulatory Activities within the SRC
1. Registration process
2. Reporting requirements
3. Anti-fraud provisions
4. Regulation on market participants
5. Civil and criminal sanctions
Definition of Securities
Section 3.1. "Securities" are shares, participation or
interests in a corporation or in a commercial enterprise or
profit-making venture and evidenced by a certificate,
contract, instruments, whether written or electronic in
character. It includes:
(a) Shares of stocks, bonds, debentures, notes, evidences
of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certificates of
deposit for a future subscription;
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 168
(c) Fractional undivided interests in oil, gas or other mineral
rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation,
trust certificates, voting trust certificates or similar
instruments
(f) Proprietary or nonproprietary membership certificates in
corporations; and
(g) Other instruments as may in the future be determined
by the Commission.
SEC OPINION
September 11, 2009
There are two general forms of traditional securities
1. Equity Securities; and
2. Debt Securities
Equity and debt securities differ in terms of relationship
between the issuer and the security holder.
Equity securities represent ownership right in a
corporation. On the other hand, debt securities require the
issuer to repay the principal amount loaned to it by fixed
maturity date.
Coverage of Securities
It is important to take note of the definition of securities, such
as if a scheme is considered an investment contract, it is then
considered a security, then covered by SRC.
[1] Shares of Stocks
[2] Investment Contract
SEC OPINION NO. 11-49
December 21, 2011
An investment contract means a contract, transaction or
scheme (collectively “contract”) whereby a person invests
his money in a common enterprise and is led to expect
profits from the efforts of others.
1. An investment contract is presumed to exist whenever
a person seeks to use the money or property of others on
the promise of profits.
2. A common enterprise is deemed created when two (2) or
more investors “pool” their resources, creating a common
enterprise, even if the promoter receives nothing more than
a broker’s commission.
POWER HOMES UNLIMITED v. SEC
546 SCRA 567 (2008)
Issue: Does the business of Power Homes involve an
investment contract that is considered a security and thus
must be registered prior to sale or offer for sale or
distribution to public? – Yes.
Held: (1) Investment Contract. - An investment contract
is defined as a "contract, transaction or scheme (collectively
‘contract’) whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the
efforts of others.
(2) Howey Test. – The concept of investment contract
traces its roots from a 1946 US Case of SEC v. WJ Howey.

It established a test to determine whether a transaction falls
within the scope of an investment contract. Known as the
Howey Test, it requires that the transaction, contract, or
scheme whereby a person: (1) makes an investment of
money; (2) in a common enterprise; (3) with the
expectation of profits; (4) to be derived solely from the
efforts of others. Later in SEC v. Turner the elements that
profits must “solely” come from efforts of others should not
be given a strict interpretation. It held that a literal reading
of the requirement “solely” would be unrealistic.
Our RA 8799 appears to follow this flexible concept for it
defines an investment contract as a contract, transaction or
scheme (collectively "contract") whereby a person invests
his money in a common enterprise and is led to expect
profits not solely but primarily from the efforts of others.
Thus, to be a security subject to regulation by the SEC, an
investment contract it must be proved to be:
(1) an investment of money,
(2) in a common enterprise,
(3) with expectation of profits,
(4) primarily from efforts of others.
(3) Business Operation or Scheme is a Security. - The
business scheme of petitioner in the case at bar is essentially
similar. An investor enrolls in petitioner’s program by paying
US$234. This entitles him to recruit two (2) investors who
pay US$234 each and out of which amount he receives
US$92. A minimum recruitment of four (4) investors by
these two (2) recruits, who then recruit at least two (2)
each, entitles the principal investor to US$184 and the
pyramid goes on.
We reject petitioner’s claim that the payment of US$234 is
for the seminars on leverage marketing and not for any
product. Clearly, the trainings or seminars are merely
designed to enhance petitioner’s business of teaching its
investors the know-how of its multi-level marketing
business. An investor enrolls under the scheme of petitioner
to be entitled to recruit other investors and to receive
commissions from the investments of those directly
recruited by him. Under the scheme, the accumulated
amount received by the investor comes primarily from
the efforts of his recruits.
(4) It Must be Registered. - We therefore rule that the
business operation or the scheme of petitioner constitutes
an investment contract that is a security under R.A. No.
8799. Thus, it must be registered with public
respondent SEC before its sale or offer for sale or
distribution to the public. As petitioner failed to register
the same, its offering to the public was rightfully enjoined
by public respondent SEC. The CDO was proper even without
a finding of fraud. As an investment contract that is security
under R.A. No. 8799, it must be registered with public
respondent SEC, otherwise the SEC cannot protect the
investing public from fraudulent securities. The strict
regulation of securities is founded on the premise that the
capital markets depend on the investing public’s level of
confidence in the system.
IN RE: RIGEN MARKETING CORPORATION
SEC CDO Case No. 06-19-051
Facts: A Motion for Issuance for Cease and Desist Order was
sought against Rigen Marketing. SEC En Banc issued a CDO
for engaging the selling and/or offering for sale securities in
the form of investment contracts.
In its Motion, the Investigation Department (EIPD) attached
an Acknowledgment Receipt indicating that the latter
shall receive an incentive of 400% of their capital, as well as
Facebook and Youtube screenshots of promotion of scheme.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 169
Issue: Was Rigen offering securities to public in the form
of investment contracts and in violation of SRC? - Yes.
Held: Howey Test. – It has been established that Rigen’s
product packages are in fact investment contracts following
the test applied in Power Homes v. SEC.
[1] Investment of Money
There is an investment of money as evidenced by Rigen’s
acknowledgment receipts issued to its investors, which is in
the nature of a contract.
[2] Common Enterprise
All the acknowledgment receipts and Facebook posts point
out to Rigen Marketing, Rigen Wellness Product Marketing
and/or “John Rigen” which is operating in PLJ Building,
Tagum City.
[3] Expectation of Profits
Rigen guarantees a profit of up to 400% after a month or as
soon as the company is able to sell its first batch of products
to the public as shown by the statement in their
Acknowledgment Receipt which says “I/We will be entitled
to an incentive not exceeding 400% of my/our payment as
soon as the company can sell the product herein sold to the
first minimum eight (8) consumers per batch.”
[4] Primarily from the Efforts of Others
Such profit of the investor ins earned through the efforts of
Rigen and without the investor doing anything as indicated
in the Acknowledgment Receipt they issued “as soon as the
company can sell the product”.
Taking into consideration all the foregoing circumstances,
there is substantial evidence that Rigen is offering securities
to the public in the form of investment contracts without the
necessary permit in violation of SRC. Rigen must be
restrained in order to protect the investing public from fraud
and grave damage.
Ponzi Scheme. - Worse, the investment scheme of Rigen
Marketing has characteristics of a Ponzi scheme as it
promises exorbitant rate of return with little or no risk at all
to investors “a Ponzi scheme is a type of investment fraud
that involves the payment of purported returns to existing
investors from funds contributed by new investors. Its
organizers often solicit new investors by promising to invest
funds in opportunities claimed to generate high returns with
little or no risk.
In many ponzi schemes, the perpetrators focus on attracting
new money to make promised payment to earlier-stage
investors to create false appearance that investors are
profiting from a legitimate business. It is not an investment
strategy but gullibility scheme, which works as long as
there is an ever increasing number of new investors joining
the scheme. It is difficult to sustain the scheme over a long
period of time because the operators needs an ever larger
pool of later investors to continue paying the promised
profits to early investors. The idea behind this type of
swindle is that the “con man” collects his money from is
second or third round of investors and then absconds before
anyone else shows up to collect. Necessarily, ponzi schemes
only lasts weeks, or months at most.
[3] Derivatives
Derivative is a financial instrument, including options and
warrants, whose value depends on the interest in or
performance of an underlying security, but which does not
require any investment of principal in underlying security.

Otherwise stated, a derivative is a security with a price that is
dependent upon or derived from one or more underlying
assets. The derivative itself is a contract between two or more
parties based upon the asset or assets. Its value is determined
by fluctuations in the underlying asset like stocks.
Options are contracts that give the buyer the right, but not
the obligation, to buy or sell an underlying security at a pre-
determined price called the exercise or strike price, on or
before a pre-determined, called the expiry date, which can only
be extended in accordance with Exchange rules. Note that
options are an opportunity only not an obligation unlike futures
contracts.
Options can be exercised
1. Call options are the rights to buy; and
2. Put options are the rights to sell.
Warrants are rights to subscribe or purchase new shares or
existing shares in a company, on or before a predetermined
date, called the expiry date, which can only be extended in
accordance with exchange rules.
✓ Warrants are similar to options but has longer periods
between issue and expiration.
Illustration:
Tony owns 100 shares with ABC Corporation, engaged in the
business of jewelry. Concerned with the effect of pandemic,
Tony seeks to hedge (reduce risk) in order to protect his
interest against the possible fall in prices of jewelry in the
upcoming months after the pandemic.
What Tony does is that he enters into a derivative contract
with Reginald. They agreed that within 1 year from now, the
shares are to be purchased by Reginald at price of P100 per
share, whatever the fair value of the shares may be when
the time comes. Suppose when 1 year has arrived, the fair
value of the shares had indeed fell to P50 per share.
a.] If it was a futures contract or a forward contract
kind of derivative, Reginald would be constrained to buy
the underlying asset (the shares) at P100 per shares, forcing
Reginald to have a loss of P5,000.
b.] If it was an option/warrant derivative, Reginald can
choose to buy (call option) or to sell (put option) the
shares. Reginald then is not constrained to buy or sell the
shares since it is option/warrant derivative, but usually
they come with a much higher premium rate.
Registration of Securities
Section 8. Requirement of Registration of Securities.
8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration
statement1 duly filed with and approved by the
Commission.
Prior to such sale, the information on the securities,
in such form and with such substance as the Commission
may prescribe, shall be made available to each
prospective buyer2.
8.2. The Commission may conditionally approve the
registration statement under such terms as it may deem
necessary.
8.3. The Commission may specify the terms and conditions
under which any written communication, including any
summary prospectus, shall be deemed not to constitute an
offer for sale under this Section.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 170
8.4. A record of the registration of securities shall be kept
in Register Securities in which shall be recorded orders
entered by the Commission with respect such securities.
Such register and all documents or information with the
respect to the securities registered therein shall be open to
public inspection at reasonable hours on business days.
8.5. The Commission may audit the financial statements,
assets and other information of firm applying for
registration of its securities whenever it deems the same
necessary to insure full disclosure or to protect the interest
of the investors and the public in general.
1
Requirement to File Registration Statement
[1] Filing of Registration Statement and Effectivity of Offering
a. No securities, except of a class exempt under Section 9 or
unless sold in any transaction exempt under Section 10, shall
be sold or distributed by any person within the Philippines
UNLESS: Such securities shall have been registered with the
Commission and the registration statement has been declared
effective by the Commission. Moreover, no securities shall be
offered unless a registration statement has been filed with SEC.
b. If the securities which are subject of the registration
statement are intended to be listed on the Exchange, a copy
of the registration statement and all other pertinent documents
shall simultaneously be filed with that Exchange. All
amendments to the registration statement shall also be
simultaneously filed. Upon filing of the application for listing on
that Exchange, two (2) copies of the application shall be filed
with the SEC.
[2] Publication of Notice of Filing
a. The registrant shall prepare and file with its registration
statement a notification of the filing which shall recite that a
registration statement for the sale of the subject security has
been filed with the Commission, that the registration statement
is open to inspection by interested parties during business
hours at the Commission and that copies thereof shall be
furnished to everyone requesting such at a reasonable charge.
The Code requires the issuer immediately to publish the
notification, at its own expense, in two newspapers of general
circulation in the Philippines, once a week for two consecutive
weeks.
b. The registrant shall submit to the Commission, as part of its
filing of the registration statement, an affidavit with a copy of
the publication that was, or is to be made, attesting that such
action has been or will be immediately taken.
2
Prospectus Delivery Rule
Securities required to be, and which are, registered shall not
be sold unless a prospectus, which has been filed with the
registration statement in the form containing the information
hereinafter described, is widely disseminated and sufficient
copies have been made available so that all who desire may
obtain one.
Note: This involve information on the securities available to a
prospective buyer. The buyer would then be informed of the
details of the security being sold or offered.
Kinds of Securities
Two General Kinds of Securities
1. Registrable Securities
2. Exempt Securities

Registrable Securities
These are securities that should comply with the registration
requirement under Sections 8 and 12 of the SRC before it can
be sold or offered to the public. The registration requirement
allows the SEC to examine the capacity to business who offers
the securities to meet its promises.
Exempt Securities
There are securities that are deemed exempt primarily because
another agency or a regulatory body is already making the
examination and inspection of these securities thus they are
deemed exempted from the registration requirement.
Section 9. Exempt Securities. – 9.1. The requirement of
registration under Subsection 8.1 shall not as a general rule
apply to any of the following classes of securities:
(a) Any security issued or guaranteed by the Government
of the Philippines, or by any political subdivision or agency
thereof, or by any person controlled or supervised by, and
acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government
of any country with which the Philippines maintains
diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity: Provided,
That the Commission may require compliance with the form
and content for disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of
which, by law, is under the supervision and regulation of
the Office of the Insurance Commission, Housing and Land
Use Rule Regulatory Board, or Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of
stock.
Rationale of the Exempt Securities
SEC OPINION (December 8, 1997)
Are the “Certificate of Participation” to be issued are exempt
from the registration requirements? – No.
The above provision uses the phrase “and is supervised by
the Central Bank” as a condition for the securities to be
considered as exempt. The philosophy behind the above
exemption is that registration under the then Revised
Securities Act (RSA). It is no longer necessary [in the public
interest, or] for the protection of the investors, inasmuch as
they are issued by institutions over which the Bangko
Sentral has already exercised regulatory or
supervisory care, [therefore] are presumed to be
adequately regulated by the office.
However in the present case, the Bangko Sentral in its letter
comment manifested that the certificate of participation to
be issued under the proposed scheme, do not appear to be
related to banking business and therefore are not among
contemplated to be exempt from SEC.
SEC OPINION (February 8, 2006)
While the Unit Investment Trust Fund Agreement falls within
the scope of securities. However, said trust fund constitutes
an exempt security “any security issued by a bank except
its own shares of stock.” Accordingly the registration of said
securities is not necessary. But it does not preclude issuer
from complying with pertinent anti-fraud provisions.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 171
Note: This gives us a guide on how to determine
1. Is it considered a security under Section 3?
2. If yes, is it an exempt security under Section 9?
3. If not, is it involved in an exempt transaction under
Section 10?
Exempt Securities Exempt Transactions
The securities itself is not The securities may be
registrable. registrable but the
transaction itself is exempt.
Section 10. Exempt Transactions. – 10.1. The
requirement of registration under Subsection 8.1 shall not
apply to the sale of any security in any of the following
transactions:
[Forced Sale]
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in insolvency
or bankruptcy.
[Pledgee or Mortgagee Holder]
(b) By or for the account of a pledge holder, or mortgagee
or any of a pledge lien holder selling of offering for sale or
delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate
a bonafide debt, a security pledged in good faith as security
for such debt.
[Isolated Transaction]
(c) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s account,
such sale or offer for sale or offer for sale, subscription or
delivery not being made in the course of repeated and
successive transaction of a like character by such owner, or
on his account by such representative and such owner or
representative not being the underwriter of such security.
[Note: This is more of a private sale and there is no public
input as long as it is not repeated or in succession.]
[Stock Dividends]
(d) The distribution by a corporation actively engaged
in the business authorized by its articles of incorporation,
of securities to its stockholders or other security holders
as a stock dividends or other distribution out of surplus.
[Capital Stock to Own Shareholders]
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other
remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock.
[Bonds or Notes to Single Purchaser in Single Sale]
(f) The issuance of bonds or notes secured by mortgage
upon real estate or tangible personal property, when the
entire mortgage together with all the bonds or notes
secured thereby are sold to a single purchaser at a
single sale.
[Conversion]
(g) The issue and delivery of any security in exchange for
any other security of the same issuer pursuant to a right of
conversion entitling the holder of the security surrendered
in exchange to make such Conversion: Provided, That the
security so surrendered has been registered under this
Code or was, when sold, exempt from the provision of this
Code, and that the security issued and delivered in
exchange, if sold at the conversion price, would at the time
of such conversion fall within the class of securities entitled
to registration under this Code.

Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at
which the securities issued and delivered in such exchange
are sold.
[Broker’s Transaction]
(h) Broker’s transaction, executed upon customer’s orders,
on any registered Exchange or other trading market.
[Covered and regulated by the Philippine Stock Exchange]
[Compliance with Requirements of Law]
(i) Subscriptions for shares of the capitals stocks of a
corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital stocks
under the Corporation Code, when no expense is incurred,
or no commission, compensation or remuneration is paid or
given in connection with the sale or disposition of such
securities, and only when the purpose for soliciting, giving
or taking of such subscription is to comply with the
requirements of such law as to the percentage of the
capital stock of a corporation which should be subscribed
before it can be registered and duly incorporated, or its
authorized, capital increase.
[Note: Usually to comply the required
Filipino equity ownership]
[Exchange of Securities]
(j) The exchange of securities by the issuer with the existing
security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for
soliciting such exchange.
[Private Placement]
(k) The sale of securities by an issuer to fewer than
twenty (20) persons in the Philippines during any
twelve-month period.
[Note: This refers to private placement transactions to sale
to not more 19 persons within 12-month period, thus the
corporation is not a public corporation.]
[Sale to Qualified Buyers]
(l) The sale of securities to any number of the following
qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political subdivision
thereof or manage by a bank or other persons authorized
by the Bangko Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by
determine as qualified buyers, on the basis of such factors
as financial sophistication, net worth, knowledge, and
experience in financial and business matters, or amount of
assets under management.
[Note: Qualified buyers, even if they purchase shares of
stock they are not required to register as they are presumed
to be adequately competent and are charged with due
diligence and they are regulated by laws.]
10.2. The Commission may exempt other transactions, if it
finds that the requirements of registration under this Code
is not necessary in the public interest or for the protection
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 172
of the investors such as by the reason of the small amount
involved or the limited character of the public offering.
[Notice of Exemption]
10.3. Any person applying for an exemption under this
Section, shall file with the Commission
a notice identifying the exemption relied upon on such
form and at such time as the Commission by the rule may
prescribe and with such notice shall pay to the Commission
fee equivalent to one-tenth (1/10) of one percent (1%) of
the maximum value aggregate price or issued value of the
securities.
Unlike in exempt securities, when it involves exempt
transactions, the one claiming relief of exemption must comply
with the SRC Rules on Disclosure and Notification Requirement
Rule on Exempt Transactions
10.1.1. Disclosure to Investors
Any person claiming exemption under Section 10.1 of the
Code shall provide to any party to whom it offers or sells
securities in reliance on such exemption a written
disclosure containing the following information:
1. The specific provision of Section 10.1 of the Code on
which the exemption from registration is claimed; and
2. Whether the Commission’s confirmation that such offer
and sale qualifies as an exempt transaction has been
obtained; and
2. The following statement in bold face:
THE SECURITIES BEING OFFERED OR SOLD HEREIN HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES REGULATION CODE.
ANY FUTURE OFFER OR SALE OF THE SECURITIES IS SUBJECT
TO THE REGISTRATION REQUIREMENTS UNDER THE CODE
UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT
TRANSACTION.
10.3. Application for Confirmation of Exemption
Any person applying or seeking for confirmation of an
exemption under Section 10 the Code shall file with the
Commission a NOTICE identifying the exemption relied upon
on such form and at such time as the Commission may rule
may prescribe and with such notice shall pay to the
Commission a fee equivalent to 1/10 of 1% of the maximum
aggregate price or issued value of the securities.
Note: After which the SEC shall issue a:
✓ Confirmation of Availability of Exemption.
Certain Rules for Exemptive Relief
Under Private Placement [10(k)]
[a] The issuer claiming such relief shall not engage in any
form of general solicitation or advertising in connection
therewith. [Note: The issuer cannot hand out pamphlets or
brochures in relation to the security being sold or offered.
[b] Securities sold in any such transaction may only be sold
to persons purchasing in their own account.
[c] Sales may be made to no more than 19 non-qualified
buyers. A corporation, partnership or other entity shall be
counted as one buyer; provided, however, if that entity is
organized for the specific purpose of acquiring the securities
officered and is not a qualified buyer, then each beneficial
owner of equity securities in the entity shall count as a
separate buyer under this rule.

[d] The issuer provides any person to whom they offer for
sale or sell securities pursuant thereto with the following
information:
i. Exact name of the issuer and its predecessor, if any
ii. Address of its principal executive offices;
iii. Place of incorporation;
iv. Exact title and class of security;
v. Par or state value of the security
vi. Number of shares or total amount of securities
outstanding as of the end of the issuer’s most
recent fiscal year xxx (among others).
[Note: This is to apprise the investor on what securities is,
where the investment will be used and for them to make an
informed decision. It does not mean that it is an exempt
transaction the issuer does not do anything.]
[e] The issuer files with the Commission a notice of
exemption from registration requirement.
Rejection and Revocation of Registration of Securities
Section 13. Rejection and Revocation of Registration
of Securities. – 13.1. The Commission may
1. reject a registration statement and
2. refuse registration of the security thereunder or
3. revoke the effectivity of a registration statement
and the registration of the security
thereunder after due notice and hearing by issuing an
order to such effect, setting forth its finding in respect
thereto, if it finds that:
[a] The issuer
1. Has been judicially declared insolvent;
2. Has violated any provision of this Code, the rules
promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in
connection with the offering for which a
registration statement has been filed;
3. Has been or is engaged or is about to engage in
fraudulent transaction;
4. Has made false or misleading representation
of material facts in any prospectus concerning
the issuer its securities;
5. Has failed to comply with any requirements that
the Commission may impose as a condition for
registration of the security for which the
registration statement has been filed;
[b] The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statements on a material fact required to be stated therein
or necessary to make the statement therein not misleading;
[c] The issuer, any officer, director or controlling person
performing similar function, or any underwriter has been
convicted, by a competent judicial or administrative body,
upon plea of guilty or otherwise, of an offense involving
moral turpitude and/or fraud or is enjoined or restrained
by Commission or competent or administrative body for
violations of securities, commodities and other related laws.
For the purpose of this subsection, the term “competent
judicial or administrative body” shall include a foreign
court of competent jurisdiction as provided for under Rules
of Court.
[Note: Thus, for example Mr. A does not have any record
of any SRC violation in the Philippines, but it turns out that
he was convicted in the United States for Securities
violation, otherwise the registration will be rejected]/
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 173
13.2. The Commission may compel the production of all the
books and papers of such issuer, and may administer oaths
to, examine the officers of such the issuer or any other
person connected therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to
be made by the Commission, its refusal shall be ground for
refusal or revocation of the registration of its securities.
[Suspension of Registration]
13.4. If the Commission deems it necessary, it may issue
an order suspending the offer and sale of the securities
pending any investigation. The order shall state the grounds
for taking such action, but such order of suspension
although binding upon the persons notified thereof, shall be
deemed confidential, and shall not be published. Upon
the issuance of the suspension order, no further offer or
sale of such security shall be made until the same is lifted
or set aside by the Commission. Otherwise, such sale shall
be void.
13.5. Notice of issuance of such order shall be given to the
issuer and every dealer and broker who shall have notified
the Commission of an intention to sell such security.
13.6. A registration statement may be withdrawn only
with the consent of the Commission.
Terms to know:
INITIAL PUBLIC OFFERING
It is the very first sale of a stock issued by a company on the public
market, which essentially means that one is turning a private
company into a public one. So, when its private, a company is
normally owned by a small number of investors. Once the company
goes public the company is being opened to be owned by a large
number of people. In effect, the firm goes from being owned by just
a few people to potentially tens of thousands of shareholders. Going
public raises a lot of cash for a company. Together with underwriter,
the company determine the type of securities offered, offering price,
number of shares and time to bring a company to the public market.
This comes with registration with SEC.
PHILIPPINE STOCK EXCHANGE v. CA
281 SCRA 322 (1997)
Facts: PALI, a real estate corporation, sought to offer its
shares to the public in order to raise funds to develop its
properties and pay its loans. PALI was issued a permit to sell
its shares to the public by the SEC. To facilitate trade, it
sought to course trading of shares through the Philippine
Stock Exchange (PSE), thus, it filed with an application to
list its shares. Due to issues with the Marcoses, PSE reached
its decision to reject PALI’s application, citing existence of
serious claims, issues and circumstances surrounding PALI’s
ownership over its assets.
SEC reversed the PSE’s decision ordering PSE immediately
cause the listing of the PALI shares in the Exchange. But
according to the CA, PALI Complied with all the requirements
for public listing, affirming the decision of SEC.
In any case, for the purpose of determine whether PSE acted
correctly in refusing the application of PALI, the true
ownership of the properties of PALI need not be determined
as an absolute fact. What is material is that the uncertainty
of the properties’ ownership and alienability exists, and this
puts to question the qualification of PALI’s public offering.
Held: SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing in the PSE
of the private respondent PALI, since this is a matter in the
sound discretion of PSE.

The law provides that no security, unless exempt by law,
shall be issued, endorsed, sold, transferred or in any other
manner conveyed to the public, unless registered. The SEC,
as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and
as such, is given ample authority in determining appropriate
policies. The SEC can only reverse PSE decision only when
it is attended by bad faith.
(1) Full Material Disclosure Requirement. - Pursuant to
this regulatory authority, the SEC has manifested that it has
adopted the policy of "full material disclosure" where all
companies, listed or applying for listing, are required to
divulge truthfully and accurately, all material information
about themselves and the securities they sell, for the
protection of the investing public, and under pain of
administrative, criminal and civil sanctions. In connection
with this, a fact is deemed material if it tends to induce or
otherwise effect the sale or purchase of its securities.
(2) Ground for Rejection of Registration. - Pertinently,
Section 9 of the Revised Securities Act sets forth the possible
Grounds for the Rejection of the registration of a security:
(1) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading; or
The Court finds that the private respondent PALI, has failed
to support the propriety of the issue of its shares with
unfailing clarity, thereby lending support to the conclusion
that the PSE acted correctly in refusing the listing of PALI in
its stock exchange. This does not discount the effectivity of
whatever method the SEC, in the exercise of its vested
authority, chooses in setting the standard for public
offerings of corporations wishing to do so. However, the SEC
must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of
which cannot be amended or supplanted by mere
administrative issuance.
Commodity Futures Contract
Section 11. Commodity Futures Contracts. – No person
shall offer, sell or enter into commodity futures contracts
except in accordance with the rules, regulations and orders
of the Commission may prescribe in the public interest. The
Commission shall promulgate rules and regulations
involving commodity futures contracts to protect investors
to ensure the development of a fair and transparent
commodities market.
Commodity Futures Contracts
Means a contract providing for the making or taking delivery at
a prescribed date in the future of a specific quantity and quality
of a commodity or the cash value thereof, which is customarily
offset prior to the delivery date, and includes standardized
contracts having indicia of commodities futures, commodity
options and commodity leverage, or margin contract [SRC
Rules 11.1.1].
Otherwise stated, commodity futures contract are contracts
between two parties to exchange certain units of a commodity
on a future date but at a price fixed today.
Illustration: Mark has been following the trend of the coffee
industry for a few months, he became aware that the price
of coffee might increase due to restriction on coffee
production. To take advantage of this knowledge, Mark
enters into a commodity future contract.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 174
Mark enters into a contract with Ralph to buy 100kg of coffee
after one month, but at today’s price which is P300/kg. If
Mark’s speculation is correct, and the price of coffee after
one month increase to P500/kg, Mark’s profit will be at
P200/kg x 100kg, with a total of P20,000 as total profit.
However, if Mark’s speculation is proved wrong, and the
price of coffee instead decreases to P150/kg, then Mark
would have to sell his coffee at a loss of P150/kg x 100kg
with a total loss of P15,000.
Commodity means any goods, articles, agricultural and
mineral products, services, rights and interests, financial
instruments, foreign currencies, including any group or index
of any of the foregoing, in which commodity interest contracts
are presently or in the future dealt with [SRC Rules 11.1.2.].
Terms to know:
HEDGING: FORWARDS AND FUTURES CONTRACTS
Basically put, a hedger happens when a person wants to reduce the
risk of his products/commodities. This is usually done by entering into
derivative contracts.
For example, Farmer A has a corn crops that is ready for harvest in
a few months and will be ready to sell. However, Farmer A is worried
that at the time the crops are ready to sell, the market price for corn
might fall very low. Thus, he hedges the risk of fluctuating prices by
entering into a commodity futures contract for example. Basically, he
wants to offset the risk by passing the risk on to someone else, he
becomes a hedger by finding someone (a speculator) who agrees to
buy his corn even though he hasn’t got the corn ready to deliver yet.
They agree to sell the crops for P10,000 for delivery within 6 months
from now. If the corn prices goes up or goes down, the farmer is safe
because he agreed to sell. The speculator has taken on the market
risk, if corn goes up, he can sell for than he bought it. If it goes lower,
the speculator suffers a loss. This is an example of a forward
contract, where by the hedger and speculator deal with contract
face to face at their own terms.
The problems with forward contracts are that, the farmer might not
be able to find a speculator, and if there was, the speculator may
disappear in case of loss and that farmer would have a hard time
chasing the speculator to enforce the forwards contract.
How does the hedger find a speculator? This is why exchanges
comes into being, they standardize the agreement, and standardized
version is called a futures contract. It still agrees to buy for a price
now for delivery of a product at some point in future, but it is all now
standardized by the Exchange. The hedger does not directly deal
with the speculator but with the Exchange where speculator also go.
The Exchange facilitates the coming together of hedgers and
speculators, so that the farmer need not to worry about settlement of
money because the exchange pays him for the corn that sells and
takes on the responsibility of insuring the speculator pays.
Forwards means a contract between a buyer and a seller
whereby the buyer is obligated to take delivery and the seller
is obliged to deliver a fixed amount of an underlying commodity
at a pre-determined price and date. Payment in full is due at
the time of delivery [SRC Rule 11.1.3].
Suspension of Public Trading
Of Commodity Futures Contracts
The public trading of commodity futures contracts and rules on
futures trading shall remain suspended until further ordered
otherwise by the Commission, without prejudice to applicable
Bangko Sentral ng Pilipinas rules and circulars on commodity
futures contracts of entities and persons under BSP’s
jurisdiction. [SRC Rules 11.2]
Exchange is an organized marketplace or facility that brings
together buyers and sellers, and executes trades of securities
and/or commodities [SRC Rules 3.1.10]

PROHIBITIONS ON FRAUD, MANIPULATIONS
AND INSIDER TRADING
Guide in Dealing with Securities
Is considered securities under Section 3?
Yes. [Proceed] No.
What kind of security is it?
Registrable Exempt Security
If it is a registrable security,
Not in an exempt transaction In an exempt transaction
It should then be registered if not exempt
And if its then offered to the public the SEC shall exercise its
supervisory powers to prohibit fraud, manipulations and
insider trading.
Manipulation of Security Prices
Section 24. Manipulation of Security Prices; Devices
and Practices. –
24.1 It shall be unlawful for any person acting for himself
or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of
active trading in any listed security traded in an Exchange
of any other trading market (hereafter referred to purposes
of this Chapter as "Exchange"):
(i) By effecting any transaction in such security which
involves no change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or
sale of such security with the knowledge that a
simultaneous order or orders of substantially the same size,
time and price, for the sale or purchase of any such
security, has or will be entered by or for the same or
different parties; or
(iii) By performing similar act where there is no
change in beneficial ownership.
[NOTE: One makes it appear that a security is being actively
traded, making it attractive for investors. For example,
when parties actually just in fact sell it to their relatives.
There is no fact of change of beneficial ownership. It is
unlawful for any person to create an appearance that there
is an active trade, because it will entice investors to actually
purchase that securities, when in fact it is not valuable.]
(b) To affect, alone or with others, a series of transactions
in securities that:
(i) Raises their price to induce the purchase of a
security, whether of the same or a different class of the
same issuer or of controlling, controlled, or commonly
controlled company by others; or
(ii) Depresses their price to induce the sale of
security, whether of the same or of a different class, of the
same issuer or of a controlling, controlled, or commonly
controlled company by others; or
(iii) Creates active trading to induce such a purchase
or sale through manipulative devices such as
✓ marking the close,
✓ painting the tape,
✓ squeezing the float,
✓ hype and dump,
✓ boiler room operations and
✓ such other similar devices.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 175
(c) To circulate or disseminate information that the
price of any security listed in an Exchange will or is likely
to rise or fall because of manipulative market operations of
any one or more persons conducted for the purpose of
raising or depressing the price of the security for the
purpose of inducing the purpose of sale of such security.
(d) To make false or misleading statement with respect
to any material fact, which he knew or had reasonable
ground to believe was so false or misleading, for the
purpose of inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of
transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing or
stabilizing the price of such security; unless otherwise
allowed by this Code or by rules of the Commission.
24.2. No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or
deceptive device or contrivance. Neither shall any short sale
be effected, nor any stop-loss order be executed in
connection with the purchase or sale of any security except
in accordance with such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest for the protection of investors.
24.3. The foregoing provisions notwithstanding, the
Commission, having due regard to the public interest and
the protection of investors, may, by rules and regulations,
allow certain acts or transactions that may otherwise be
prohibited under this Section.
Particular Kinds of Manipulation of Security Prices
1. Wash Sale
Engaging in transactions in which there is no change
in beneficial ownership [SRC Rules 24.1.5.5]
Wash Sale
It is a sale of securities (stock, bonds, options) at a loss and
repurchase of same or substantially identical security shortly
before or after. Wash sale regulations protect against an
investor who holds an unrealized loss and wishes to make it
claimable as tax deduction within current tax year. Security
is then repurchased in the hope that it will recover its previous
value, which would only become taxable in some future year.
Concepts to remember:
TAX RULES ON WASH SALES
A wash sale is a transaction by which an investor sells a losing
security to claim as capital loss only to repurchase it or a substantially
identical security again within a certain period (30 days before or after
the sale). Some investors use this technique to try to realize a tax
loss without limiting their exposure to the security.
For example, F bought 100 shares of XYZ technology stock on
November 1 for P100,000. On December 15, the value of the 100
shares has declined to P70,000. Thus, F would sell the entire position
to realize a capital loss of P30,000. Then, on December 25 of the
same year, F then would repurchase the 100 shares of XYZ
technology or substantially identical security to reestablish F’s
position in the stock. According to the was sale rule, the loss should
not be claimed as a deduction. The wash-sale rule provides that the
losses from wash sales of stock and securities are not deductible.
This discourages selling at loss to take advantage of tax deduction.
Rationale: A wash sale is considered manipulation of security
prices because it makes it appear that there is active trade but
in truth it was a just repurchased by same beneficial owner.
 NOTES ON CORPORATION LAW | RM SANTIAGO 176

2. Improper Matched Order
Engaging in transactions where both the buy and sell
orders entered at the same time with the same price
and quantity by different but colluding parties. [SRC
Rules 24.1.5.3]
Improper Matched Orders
These are transactions carried out as a result of entering of buy
and sell orders to trade at or nearly at the same time, with very
similar quantity and similar price, by the same party or
different but colluding parties.
The stock is usually promoted as a “hot tip” or the “next big
thing” with details of an upcoming news that will send the stock
“through the roof.” It involves the “boosting” (hype) of stock
by making false recommendations of its value. They will then
sell (dump) their position after reaching a higher scale price.
5. Squeezing the Float
Taking advantage of a shortage of securities in the
market by controlling the demand side and exploiting
market congestion during such shortages in a way as
to create artificial prices. [SRC Rules 24.1.5.6]

The Case of Eric Landis Squeezing the Float

(US SEC, November 26, 2018) This means that when there is a shortage of securities, there is
usually a higher demand, the market congestion is being
According to the SEC’s complaint, Eric Landis of Virginia, exploited during such shortages to create artificial prices.
falsely claimed to third-party media buyers for microcap
companies that he would distribute promotional materials 6. Stop-Loss Order
for the stocks via email lists with tens of thousands of
subscribers. In reality, his distribution lists were a sham. Stop-Loss Order
A stop-loss order is an order placed with a broker to sell a
To generate trading volume and create the false impression security when it reaches a certain price. Stop-loss orders are
that he was drumming up investor interest, the SEC alleges designed to limit an investor’s loss on a position in a security.
that Landis traded thousands of microcap shares himself Although most investors associate a stop-loss order with a
using brokerage accounts in his own name, in the name long position1, it can also protect a short position2, in which
of an entity he controlled, Ridgeview Capital Partners case the security gets bought if it trades above a defined price.
LLC, and in the names of several third parties.
Otherwise stated, a stop-loss order, also know as a stop order,
Altogether, the SEC alleges that Landis placed thousands of is an order which specifies that a stock be bought or sold when
manipulative trades over three years, including it reaches a specified price known as the stop price. Once the
approximately 1,300 “matched trades,” which involved stop price is met, the stop order becomes a market order.
simultaneously selling and buying stocks in the
microcap companies he was paid to promote. Traders or investors may choose to use a stop-loss order to
protect their profits. A stop-limit order triggers once the price
“Matched sale” is usually done to give the appearance that falls below the stop price; however, the order may not be
there is trade activity but in fact there is indeed no change in executed due to the value of the limit portion of the order.
beneficial ownership because there was collusion and that
there was simultaneous buying and selling. 1
Long Position 2
Short Position
Owned Owed
NOTE: Wash sale and improper matched orders are examples A long position means an An investor sells a security
of transactions that manipulate security prices where there is investor has bought and first with the intention of
no change of beneficial ownership. owns shares of stock repurchasing it later at a
lower price.
3. Marking the Close An investor who owns 100 An investor who was sold
shares of XYZ stock in his 100 shares of Tesla without
Buying and selling securities at the close of the portfolio si said to be long yet owning those shares is
market in an effort to alter the closing price of the 100 shares. This investor said to be short 100 shares.
security. [SRC Rules 24.1.5.2] has paid in full the cost of The short investor owes 100
owning the shares. shares at settlement and
Marking the Close must fulfill the obligation by
This involves the buying or selling of securities at the reference purchasing the shares in the
time of trading session, usually at the closing time in order to market to deliver.
increase or decrease or to main the price reference (closing The investor expects the He expects the stocks to
price) at a specific level. Usual practice are those transactions stocks’ price to rise. fall. In a short position,
or orders with no apparent justification than to increase or to investor borrows from a
decrease price or to increase volume of trading near to a broker the shares in a
reference point during the close of the trading day. margin account.

The Stock Exchange in Makati usually closes around 12PM, this
usually happens around few hours before the closing time.
4. Hyping and Dumping
Engaging in buying activity at increasingly higher
prices and then selling securities in the market at the
higher prices or vice versa. [SRC Rules 24.1.5.4]
Hype and Dump
Also referred to as “pump and dump” it is the illegal act of
investor/s to promote a stock they hold and selling it once the
stock price has risen following the surge in interest as a result
of the endorsement.
7. Painting the Tape
Engaging in a series of transactions in securities that
are reported publicly to give the impression of activity
or price movement in a security. [SRC Rules 24.1.5.1]
Painting the Tape
Market manipulation whereby market players attempt to
influence the price of a security by buying and selling it among
themselves to create the appearance of substantial trading
activity. This is to attempt to influence the price of a security
and increase the volume of trading to attract the investors, who
then may push a price higher. Manipulators will then sell their
holdings to innocent investors – “painting the picture.”

From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law

8. Circulating Unverified Rumor-Based
Market Information
Disseminating false or misleading market information
through media, including the internet, or any other
means to move the price of a security in a direction
that is favorable to a position held or a transaction.
[SRC Rules 24.1.5.7]
Circulation of False Market Information
It shall be unlawful for any person acting for himself or through
a dealer or broker to circulate or disseminate information that
the price of any security listed in an Exchange will or is likely
to rise or fall because of manipulative market operations of any
one or more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of inducing
the purpose of sale of such security.
9. Short Selling
Definition of Short Sale [SRC Rules 24.2.-2.1.]
The term "short sale" shall mean any sale of a security which
the seller does not own or any sale which is consummated by
the delivery of a security borrowed by, or for the account of the
seller with the commitment of the seller or securities borrower
to return or deliver said securities or their equivalent to the
lender on a determined or determinable future date.
Effect: Short selling leads to speculation of price of securities.
NOTE: 10. Repurchasing of Outstanding Stock by Issuer was
not discussed.
Other Kind of Market Manipulations
Daisy Chain – it refers to a series of purchase and sales of the
same issue at successively higher prices by the same group of
people with the purpose of manipulating prices and drawing
unsuspecting investors into the market leaving them defrauded
of their money and securities.
Illustration: For example, Broker I will buy a stock at P50 and
sell it for P60 to Broker II, who is also part of the daisy chain.
The second broker then sells the stock for P70 to another
broker who’s in the chain. Broker I will then buy the stock back
at the end of the day for P60. Someone who isn’t part of the
chain will see that the stock sold for P60 during the day, and,
thinking it’s a good investment because of the P10 price
increase, will jump in to purchase the stock.
FRAUDULENT TRANSACTIONS
Section 26. Fraudulent Transactions. – It shall be
unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue
statement of a material fact of any omission to state a
material fact necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or
deceit upon any person.
Examples of Fraudulent Transactions
[1] Churning is where a broker-dealer is sole or dominant
market maker in a particular industry, and creates a market in
that security by repeated purchases from, and resells to, its
individual retail customers at steady increasing prices.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 177
It is also defined as the excessive trading of securities by a
broker-dealer in a customer’s discretionary account in order to
generate commissions, without regard to the customer’s
investment objective.
[2] Scalping in this sense is the practice of purchasing a
security for one’s own account shortly before recommending
that security for long-term investment and then immediately
selling the security at a profit upon the rise in the market price
following recommendation.
Scalping involves a fast-paced activity, it requires precision,
timing and execution. The goal is to buy or sell a number of
shares involving minor price changes which usually happens
from seconds to minutes, and rarely in hours.
Rationale: This is discouraged since this is involved in a kind of
gambling or that engaged in speculation.
[3] Single Day Trading Practice is a practice of buying and
selling shares in a single trading session, where the investors
settle their accounts at the end of the day.
[4] Front Running or Tailgating is the prohibited practice of
entering into an equity (stock) trade, option, futures contract,
derivative or security-based swap to capitalize on advance,
non-public knowledge of a large (block) pending transaction
that will influence the price of the underlying security.
[5] Boiler Room Operations – these refers to activities that
involve the use of high pressure sale tactics such as direct mail
offers or telephone follow-ups to investors to promote purchase
and sale of securities wherein there is misrepresentation in
these securities.
Concept to remember:
BOILER ROOMS
A boiler room is a place or operation - usually a call center - where
high-pressure salespeople call lists of potential investors ("sucker
lists") to peddle speculative, sometimes fraudulent, securities.
Sucker lists identify victims of previous scams. The term boiler room
refers to an early practice of running such operations in the basement
or boiler room of a building and is so called due to high-pressure
selling. A broker using boiler-room tactics gives customers only
positive information about the stock and discourages them from
doing any outside research. Boiler room salespeople typically use
catchphrases like "it's a sure thing" or "opportunities like this happen
once in a lifetime."
SEC v. CA
246 SCRA 738 (1995)
Fraud or deceit, not mere negligence on the part
of the offender must be established
There is, to our mind, no question that both FIDELITY and
CUALOPING have been guilty of negligence in the conduct
of their affairs involving the questioned certificates of stock.
To constitute, however, a violation of Revised Securities
Act that can warrant an imposition of a fine, fraud or deceit,
not mere negligence, on the part of the offender must be
established.
Fraud here is akin to bad faith which implies a conscious
and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity; it is unlike that of the negative
idea of negligence in that fraud or bad faith contemplates a
state of mind affirmatively operating with furtive objectives.
Given the factual circumstances found by the appellate
court, neither FIDELITY nor CUALOPING, albeit indeed
remiss in the observance of due diligence, can be held liable
under the above provisions of the Revised Securities Act.

INSIDER TRADING
Insider Trading, In Brief
Insider trading is an illegal activity which happens when person
uses material, non-public information to make a decision about
buying or selling a security. This happens when an insider, like
a director, informs an investor of a confidential information
(like an imminent merger), to influence investors to buy or sell
and usually for the purpose of obtaining profit later on.
SEC v. INTERPORT RESOURCES
567 SCRA 354 (2008)
The insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct. The intent
of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes
advantage of an uninformed investor. Insiders are obligated
to disclose material information to the other party or abstain
from trading the shares of his corporation.
This duty to disclose or abstain is based on two factors:
1. first, the existence of a relationship giving access,
directly or indirectly, to information intended to be
available only for a corporate purpose and not for
the personal benefit of anyone; and
2. second, the inherent unfairness involved when a
party takes advantage of such information knowing
it is unavailable to those with whom he is dealing.
Who is an Insider?
Section 3.8. "Insider" means
(a) the Issuer;
(b) a Director or officer (or any person performing similar
functions) of, or a person controlling the issuer;
(c) a person whose Relationship or former relationship to
the issuer gives or gave him access to material
information about the issuer or the security that is
not generally available to the public;
(d) A Government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material information
about an issuer or a security that is not generally
available to the public; or
(e) a person who Learns such information by a
communication from any foregoing insiders.
SEC v. INTERPORT RESOURCES
Supra
The term "insiders" now includes persons whose
relationship or former relationship to the issuer gives or
gave them access to a fact of special significance about the
issuer or the security that is not generally available, and one
who learns such a fact from an insider knowing that the
person from whom he learns the fact is such an insider.
Insiders have the duty to disclose material facts which are
known to them by virtue of their position, but which are not
known to persons with whom they deal and which, if known,
would affect their investment judgment. In some cases,
however, there may be valid corporate reasons for the
nondisclosure of material information. Where such reasons
exist, an issuer's decision not to make any public disclosures
is not ordinarily considered as a violation of insider trading.
At the same time, the undisclosed information should not be
improperly used for non-corporate purposes, particularly to
disadvantage other persons with whom an insider might
transact, and therefore the insider must abstain from
entering into transactions involving such securities.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 178
Insider’s Duty to Disclose When Trading
Section 27. Insider’s Duty to Disclose When Trading.
27.1. It shall be unlawful for an insider to sell or buy a
security of the issuer, while in possession of material
information with respect to the issuer or the security that
is not generally available to the public,
UNLESS:
(a) The insider proves that the information was not gained
from such relationship; or
(b) If the other party selling to or buying from the insider
(or his agent) is identified, the insider proves:
i. that he disclosed the information to the other
party, or
ii. that he had reason to believe that the other party
otherwise is also in possession of the information.
[Presumption]
A purchase or sale of a security of the issuer made by
✓ an insider defined in Subsection 3.8, or
✓ such insider’s spouse or relatives by affinity or
consanguinity within the second degree, legitimate
or common-law,
shall be PRESUMED to have been effected while in
possession of material nonpublic information if transacted
after such information came into existence but prior to
dissemination of information to the public and the lapse of
a reasonable time for market to absorb such information:
Provided, however, That this presumption shall be
REBUTTED upon a showing by the purchaser or seller that
he was aware of the material nonpublic information at the
time of the purchase or sale.
When Information is Material and Non-public
27.2. For purposes of this Section, information is "material
nonpublic" if:
(a) It has not been generally disclosed to the public
✓ and would likely affect the market price of the
security after being disseminated to the public
✓ and the lapse of a reasonable time for the
market to absorb the information; or
(b) would be considered by a reasonable person important
under the circumstances
✓ in determining his course of action whether to buy,
sell or hold a security.
*Memorize
Bar Examinations 2019:
INSIDER TRADING
Mr. P, the President of JKL, Inc. which shares are listed in the
Philippine Stock Exchange, was notified that the corporation has just
been awarded a ₱5,000,000,000.00 construction contract by a
reputable private company. Before this information could be
disclosed to the public, Mr. P called his stockbroker to purchase
20,000 shares of JKL, Inc. He also mentioned the transaction to his
brother, Mr. B. Mr. B, who was not involved at all in the business of
JKL, Inc., also bought 50,000 shares of JKL, Inc. because of the tip
disclosed to him by Mr. P.
(a) Is the information disclosed by Mr. P to Mr. B considered as
material nonpublic information for purposes of insider trading?
Explain
(b) Should Mr. P and Mr. B be held liable for insider trading? Explain.

PROTECTION OF INVESTORS
Provisions in the SRC to Protect Investors
1. Tender Offer Rule
2. Rules on Proxy Solicitation
3. Disclosure Rule
1. Tender Offer Rule
Tender Offer
CEMCO HOLDINGS v. NATIONAL LIFE INSURANCE
529 SCRA 355 (2007)
Tender offer is a publicly announced intention by a person
acting alone or in concert with other persons to acquire
equity securities of a public company.
A public company is defined as a corporation which is
[1] listed on an exchange, or
[2] a corporation with
✓ assets exceeding P50,000,000.00 and
✓ with 200 or more stockholders,
✓ at least 200 of them holding not less than 100
shares of such company.
Stated differently, a tender offer is an offer by the acquiring
person to stockholders of a public company for them to
tender their shares therein on the terms specified in the
offer. Tender offer is in place to protect minority
shareholders against any scheme that dilutes the share
value of their investments. It gives the minority
shareholders chance to exit the company under reasonable
terms, giving them the opportunity to sell their shares at the
same price as those of the majority shareholders.
Basically what happens in a tender offer is that a potential
investor or buyer before buying from the majority shareholder,
he has to make a tender offer to the entire shareholders
because this will give the minority shareholders the chance to
exit and tender their shares to prevent a situation where the
shareholders are unaware who will enter the corporation.
Section 19. Tender Offers. –
Any person or group of persons acting in concert
[1] who intends to acquire at least 15% [Now 35%] of
any class of any equity security of a listed corporation
of any class of any equity security of a corporation with
assets of at least fifty million pesos (50,000,000.00) and
having two hundred (200) or more stockholders at least one
hundred shares each or
[2] who intends to acquire at least thirty percent (30%)
of such equity over a period of twelve months (12)
Shall make a TENDER OFFER to stockholders
[a] by filling with the Commission a declaration to that
effect; and furnish the issuer, a statement containing
such of the information required in Section 17 of this Code
as the Commission may prescribe.
[b] Such person or group of persons shall publish all
request or invitations or tender offer or requesting such
tender offers subsequent to the initial solicitation or request
shall contain such information as the Commission may
prescribe, and shall be filed with the Commission and sent
to the issuer not alter than the time copies of such materials
are first published or sent or given to security holders.
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 179
Mandatory Tender Offer
SRC RULES 19.2
19.2.1. Any person or group of persons acting in concert,
who intends to acquire fifteen percent (15%) of equity
securities in a public company in one or more
transactions within a period of twelve (12) months,
shall file a declaration to that effect with the Commission.
19.2.2. Any person or group of person acting in concert,
who intends to acquired thirty-five percent (35%) of the
outstanding voting shares or such outstanding voting
shares that are sufficient to gain control of the board in a
public company in or more transactions within a period of
12 months.
19.2.3. Any person or group of persons acting in concert,
who intends to acquire 35% of the outstanding voting
shares or such outstanding voting shares that are sufficient
to gain control of the board in a public company directly
from one or more stockholders. [Private Transaction]
19.2.4. Any acquisition* that would result in ownership
of over 50% of the total outstanding equity securities of a
public company. (See Cemco Holdings v. National Life
Insurance, 2007).
NOTE: New rule under SRC Rules 2015 on Tender Offer.
Previously, any person or group of persons acting in concert
who intended to acquire 35% of the equity share in a public
company was required to disclose such intention and make the
tender offer. While this rule still holds, the new IRR sets
another rule for lower thresholds. Now, if the intention is to
acquire only 15% of the equity securities in a public company
in one or more transactions within 12-month period, said
person or persons only need to file with the SEC a declaration
to the effect or a disclosure action.
Bar Examinations 2016:
TENDER OFFER
C Corporation is the direct holder of 10% of the shareholdings in U
Corporation (a non-listed and non-public firm). U Corporation owns
62% of the shareholdings in H Corporation, publicly listed company.
The other principal stockholder in H Corporation, is C Corporation,
which owns 18% of its shares.
Meanwhile, the majority stocks in U Corporation are owned by B
Corporation (22%) and V corporation (30%). B Corporation and V
Corporation sold their respective shares in U Corporation to C
Corporation, thereby resulting in the interest of C Corporation’s
interest in U Corporation, whether direct or indirect to more than 50%.
(a) Does the Tender Offer Rule apply in this case where there has
been an indirect acquisition of the shareholders in H Corporation by
C Corporation?
Answer: Yes. The mandatory tender offer is still applicable even if
the acquisition, direct or indirect, is less than 35% when the purchase
would result in the direct or indirect ownership of over 50% of the
total outstanding equity securities of a public company (Cemco
Holdings v. National Life Insurance, 2007).
Coverage of Application of Tender Offer
The stated mandatory tender offer rule covers not only direct
acquisition but also indirect acquisition, or “any type of
acquisition.”
The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company
and for the purpose of protecting the minority stockholders of
a listed corporation.
 NOTES ON CORPORATION LAW | RM SANTIAGO 180

Whatever may be method by which control of a public company
is obtained, either through the direct purchase of its stocks or
through an indirect means, mandatory tender offer applies.
The legislative intent behind the tender offer rule makes clear
that the type of activity intended to be regulated is the
ACQUISITION OF CONTROL of the listed company through the
purchase of shares. Control may [be] effected through a direct
and indirect acquisition of stock, and when this takes place,
irrespective of the means, a tender offer must occur. The
bottom line of the law is to give the shareholder of the listed
company the opportunity to decide whether or not to sell in
connection with a transfer of control (Cemco Holdings v.
National Life Insurance, 2007).
Visualizing Tender Offer Rules Through:
DIRECT AND INDIRECT ACQUISITION
[1] Any purchase of securities from unissued capital stock;
Provided, the acquisition will not result to a 50% or more
ownership of securities by the purchaser or such percentage
that is sufficient to gain control of the board;
[NOTE: This is because they are already aware that of the
available capital stock but they chose to acquire only a
certain portion thus, there is no need to tender offer.]
[2] Any purchase of securities from an increase in
authorized capital stock;
[3] Purchase in connection with foreclosure proceedings
involving a duly constituted pledge or security arrangement
where the acquisition is made by the debtor or creditor;
[4] Purchases in connection with privatization undertaken
by the government of the Philippines;

Illustration of a Direct Acquisition [5] Purchases in connection with corporate rehabilitation

under court supervision;
X Company
[6] Purchases in the open market at the prevailing market
Shareholder Equity price; and
A 19%
B 16% [7] Merger or consolidation
C 20%
D 14% Purchasers of securities in the foregoing transactions shall,
E 31% however, comply with disclosure and other obligations
under SRC.
Now, suppose Juris buys the shares of A, the transaction is not
subject to mandatory tender offer since the total shares did not reach
Voluntary Tender Offer
the 35% equity requirement as A’s equity is only 19%.
NOTE: The express provisions on “Voluntary Tender Offer” no
But, if Juris buys the shares of A (19%) and B (16%), then tender longer appears under the 2015 SRC Rules.
offer must be made because the total shares bought by Juris is now
at 35%. 2000 SRC RULES
Voluntary Tender Offer
Illustration of an Indirect Acquisition
A person may make a voluntary tender offer. A voluntary
X Company tender offer shall be made in accordance with this Rule.

Shareholder Equity A person will be presumed to be making a voluntary tender

A 16% offer where some or all of the following factors are present:
B 19% 1. Active and widespread solicitation of public
C 15% shareholders for the shares of a public company; (
D 18% 2. Solicitation made for a substantial percentage of
E Company 32% the issuer's stock;
3. Offer to purchase is made at a premium over the
E Company prevailing market price, at firm rather than
negotiable terms;
Shareholder Equity 4. An offer is contingent on the tender of a fixed
Nembrod 50% number of shares; and/or
Hannah 25% 5. Offer is only open for a limited period of time
Sophia 25%
Bar Examinations 2019:
Suppose that Juris acquires the shares of B, again Juris is not TENDER OFFER
required to make a tender offer because it did not reach 35%.
ABC Corporation is a company which shares are listed in the PSE.
But, if Juris acquires the shares of B and the shares of Nembrod in E In 2015, 25% of ABC Corporation’s shareholdings were acquired by
Company (which is 16%, since 50% of E Company’s 32% is 16%). XYZ, Inc. while 40% of the same were acquired by RST, Inc. both of
[19% + 16% = 35%]. which are non-listed private corporations.
Then tender offer must be made because the total shares bought by Meanwhile, the remaining 35% of ABC Corporation’s shareholdings
Juris direct and indirectly is 35%. are held by the public.

In 2018, or three years (3) after it acquired its 25% stake in ABC
Exemptions from the Mandatory Corporation, XYZ, Inc. sought to obtain an additional 12%
Tender Offer Requirement shareholding in ABC Corporation by purchasing some of the shares
owned by RST, Inc. therein. The new acquisition will not, however,
19.3.1. Unless the acquisition of equity securities is result in XYZ, Inc. gaining majority control of ABC Corporation's
intended to circumvent or defeat the objectives of the tender Board.
offer rules, the mandatory tender offer requirement shall not
apply to the following: Is XYZ, Inc. required to conduct a tender offer? Explain. (3%)

From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law

2. Rules on Proxy Solicitation
Section 20. Proxy Solicitations. –
20.1. Proxies must be issued, and proxy solicitation must
be made in accordance with rules and regulations to be
issued by the Commission;
20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized representative and filed
before the scheduled meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5)
years at one time.
20.4. No broker or dealer shall give any proxy, consent,
or authorization, in respect of any security carried for the
account of a customer, to a person other than the customer,
without the express written authorization of such customer.
20.5. A broker or dealer who holds or acquires the proxy
for at least ten per centum (10%) or such percentage as
the Commission may prescribe of the outstanding share of
the issuer, shall submit a report identifying the beneficial
owner within ten (10) days after such acquisition, for its
own account or customer, to the issuer of the security, to
the Exchange where the security is traded and to the
Commission.
Role of Proxy Solicitation Rule
This proxy solicitation rule is stated in the SRC because proxies
are allowed to vote and there is a possibility for collusion with
a particular shareholders.
Requisites for Valid Proxy Solicitation
1. It must be in writing
2. It must be signed by the stockholder of his duly
authorized representative
3. It must be filed before the scheduled meeting with
the corporate secretary
3. Disclosure Rule
Section 17. Periodic and Other Reports of Issues. –
17.1. Every issuer satisfying the requirements
Subsection 17.2 hereof shall file with the Commission:
[a] Within one hundred thirty-five (135) days, after the end
of the issuer's fiscal year, or such other time as the
Commission may prescribe, an annual report which shall
include, among others, a balance sheet, profit and loss
statement and statement of cash flows, for such last fiscal
year, certified by an independent certified public
accountant, and a management discussion and analysis of
results of operations; and
[b] Such other periodical reports for interim fiscal
periods and current reports on significant developments of
the issuer as the Commission may prescribe as necessary
to keep current information on the operation of the business
and financial condition of the issuer.
17.2. The REPORTORIAL REQUIREMENTS of Subsection
17.1 shall apply to the following:
[a] An issuer which has sold a class of its securities
pursuant to a registration under Section 12 hereof:
Provided, however, That the obligation of such issuer to file
reports shall be suspended for any fiscal year after the year
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 181
such registration became effective if such issuer, as of the
first day of any such fiscal year, has less than one hundred
(100) holders of such class of securities or such other
number as the Commission shall prescribe and it notifies
the Commission of such;
[b] An issuer with a class of securities listed for trading on
an Exchange; and
[c] An issuer with assets of at least Fifty million pesos
(P50,000,000) or such other amount as the Commission
shall prescribe, and having two hundred (200) or more
holders each holding at least one hundred (100) shares of
a class of its equity securities:
Provided, however, That the obligation of such issuer to file
reports shall be terminated ninety (90) days after
notification to the Commission by the issuer that the
number of its holders holding at least one hundred (100)
shares is reduced to less than one hundred (100).
Section 18. Reports by Five Percentum (5%) Holders
of Equity Securities. –
18.1. In every case in which an issuer satisfies the
requirements of Subsection 17.2 hereof,
any person who acquires directly or indirectly the beneficial
ownership of more than five per centum (5%) of such class
or in excess of such lesser per centum as the Commission
by rule may prescribe, shall, within ten (10) days after such
acquisition or such reasonable time as fixed by the
Commission, submit to the issuer of the security, to the
Exchange where the security is traded, and to the
Commission
a sworn statement containing the following information
and such other information as the Commission may require
in the public interest or for the protection of investors.
NOTE: For purposes of this Rule equity securities means
securities which provide the holder thereof with voting rights
shall not include convertible securities and other derivatives
except as provided in the definition of beneficial owner.
Beneficial Owner or Beneficial Ownership means any
person who, directly or indirectly, through any contract,
in arrangement, understanding, relationship or otherwise, has
or shares voting power (which includes the power to dispose
of, or direct the disposition of such security) [Rule 3.1.2].
CIVIL LIABILITY
Section 56. Civil Liabilities on Account of False
Registration Statement. – 56.1. Any person acquiring a
security, the registration statement of which or any part
thereof contains on its effectivity an untrue statement of
a material fact or omits to state a material fact required to
be stated therein or necessary to make such statements not
misleading, and who suffers damage, may sue and
recover damages from the following enumerated persons,
UNLESS: it is proved that at the time of such acquisition he
knew of such untrue statement or omission:
(a) The issuer and every person who signed the
registration statement:
(b) Every person who was a director of, or any other
person performing similar functions, or a partner in, the
issuer at the time of the filing of the registration statement
or any part, supplement, or amendment thereof with
respect to which his liability is asserted;

(c) Every person who is named in the registration
statement as being or about to become a director of, or a
person performing similar functions, or a partner in, the
issuer and whose written consent thereto is filed with the
registration statement;
(d) Every auditor or auditing firm named as having
certified any financial statements used in connection with
the registration statement or prospectus.
(e) Every person who, with his written consent, which shall
be filed with the registration statement, has been named
as having prepared or certified any part of the
registration statement, or as having prepared or certified
any report or valuation which is used in connection with the
registration statement, with respect to the statement,
report, or valuation, which purports to have been prepared
or certified by him.
(f) Every selling shareholder who contributed to and
certified as to the accuracy of a portion of the registration
statement, with respect to that portion of the registration
statement which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after
the issuer has made generally available to its security
holders an income statement covering a period of at least
twelve (12) months beginning from the effective date of the
registration statement, then the right of recovery under this
subsection shall be conditioned on proof that such person
acquired the security relying upon such untrue
statement in the registration statement or relying upon
the registration statement and not knowing of such
income statement, but such reliance may be established
without proof of the reading of the registration statement
by such person.
Section 57. Civil Liabilities Arising in Connection with
Prospectus, Communications and Reports. – 57.1. Any
person who:
(a) Offers to sell or sells a security in violation of Chapter
III, or
(b) Offers to sell or sells a security, whether or not
exempted by the provisions of this Code, by the use of any
means or instruments of transportation or communication,
by means of a prospectus or other written or oral
communication, which includes an untrue statement of
a material fact or omits to state a material fact necessary
in order to make the statements, in the light of the
circumstances under which they were made, not misleading
(the purchaser not knowing of such untruth or omission),
and who shall fail in the burden of proof that he did not
know, and in the exercise of reasonable care could not have
known, of such untruth or omission, shall be liable to the
person purchasing such security from him, who may
sue to recover the consideration paid for such security
with interest thereon, less the amount of any income
received thereon, upon the tender of such security, or for
damages if he no longer owns the security.
57.2. Any person who shall make or cause to be made any
statement in any report, or document filed pursuant to this
Code or any rule or regulation thereunder, which statement
was at the time and in the light of the circumstances under
which it was made false or misleading with respect to
any material fact, shall be liable to any person who, not
knowing that such statement was false or misleading, and
relying upon such statements shall have purchased or
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 182
sold a security at a price which was affected by such
statement, for damages caused by such reliance, unless
the person sued shall prove that he acted in good faith and
had no knowledge that such statement was false or
misleading.
Section 58. Civil Liability of Fraud in Connection with
Securities Transactions. – Any person who engages in
any act or transaction in violation of Sections 19.2, 20 or
26, or any rule or regulation of the Commission thereunder,
shall be liable to any other person
➢ who purchases or sells any security,
➢ grants or refuses to grant any proxy, consent or
authorization, or
➢ accepts or declines an invitation for tender of a
security,
as the case may be, for the damages sustained by such
other person as a result of such act or transaction.
Section 59. Civil Liability for Manipulation of Security
Prices. – Any person who willfully participates in any act or
transaction in violation of Section 24 shall be liable to any
person who shall purchase or sell any security
➢ at a price which was affected by such act or
transaction, and
➢ the person so injured may sue to recover the
damages sustained as a result of such act or
transaction
Section 60. Civil Liability with Respect to Commodity
Futures Contracts and Pre-Need Plans. – 60.1. Any
person who engages in any act or transactions in willful
violation of any rule or regulation promulgated by the
Commission under Section 11 or 16,
which the Commission denominates at the time of issuance
as intended to prohibit fraud in the offer and sale of pre-
need plans or to prohibit fraud, manipulation, fictitious
transactions, undue speculation, or other unfair or abusive
practices with respect to commodity future contracts, shall
be liable to any other person sustaining damages as a
result of such act or transaction.
60.2. As to each such rule or regulation so denominated,
the Commission by rule shall prescribe the elements of
proof required for recovery and any limitations on the
amount of damages that may be imposed.
Section 61. Civil Liability on Account of Insider
Trading. –
61.1. Any insider who violates Subsection 27.1 and any
person in the case of a tender offer who violates Subsection
27.4 (a)(I), or any rule or regulation thereunder, by
purchasing or selling a security while in possession of
material information not generally available to the public,
shall be liable in a suit brought by any investor who,
contemporaneously with the purchase or sale of securities
that is the subject of the violation, purchased or sold
securities of the same class
UNLESS: such insider, or such person in the case of a tender
offer,
➢ proves that such investor knew the information or
➢ would have purchased or sold at the same price
regardless of disclosure of the information to him.

61.2. An insider who violates Subsection 27.3 or any
person in the case of a tender offer who violates Subsection
27.4 (a), or any rule or regulation thereunder, by
communicating material nonpublic information, shall be
jointly and severally liable under Subsection 61.1 with,
and to the same extent as, the insider, or person in the case
of a tender offer, to whom the communication was directed
and who is liable under Subsection 61.1 by reason of his
purchase or sale of a security.
Limitation of Actions
Section 62. Limitation of Actions. –
62.1. No action shall be maintained to enforce any liability
created under Section 56 or 57 of this Code unless brought
within two (2) years after the discovery of the untrue
statement or the omission, or, if the action is to enforce
a liability created under Subsection 57.1 (a), unless brought
within two (2) years after the violation upon which it is
based. In no event shall any such action be brought to
enforce a liability created under Section 56 or Subsection
57.1 (a) more than five (5) years after the security was
bona fide offered to the public, or under Subsection 57.1
(b) more than five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability
created under any other provision of this Code unless
brought within two (2) years after the discovery of the
facts constituting the cause of action and within five (5)
years after such cause of action accrued.
NOTE: The provision means is that civil action should be filed
1. Within 2 years from the discovery of the violation;
2. But it should be made within 5 years from the time
the violation was commission.
PUA v. CITIBANK, N.A.
718 Phil. 1 (2013)
It is clear that cases falling under Section 57 of the SRC,
which pertain to civil liabilities arising from violations of the
requirements for offers to sell or the sale of securities, as
well as other civil suits under Sections 56, 58, 59, 60, and
61 of the SRC shall be exclusively brought before the
regional trial courts.
Therefore, based on these considerations, it stands to
reason that civil suits falling under the SRC are under
the exclusive original jurisdiction of the regional trial
courts and hence, need not be first filed before the SEC,
unlike criminal cases wherein the latter body exercises
primary jurisdiction. All told, petitioners' filing of a civil suit
against respondent for purported violations of the SRC was
properly filed directly before the RTC.
CEASE AND DESIST ORDER
Section 64. Cease of Desist Order. – 64.1. The
Commission, after proper investigation or verification,
motu proprio or upon verified complaint by any
aggrieved party, may issue a cease and desist order
without the necessity of a prior hearing if in its
judgment the act or practice, unless restrained, will operate
as a fraud on investors or is otherwise likely to cause grave
or irreparable injury or prejudice to the investing public.
64.2. Until the Commission issue a cease and desist order,
the fact that an investigation has been initiated or that a
complaint has been filed, including the contents of the
complaint, shall be confidential. Upon issuance of a cease
From the Discussions and Syllabus of Atty. Raymund Christian S. Ong Abrantes, CPA | 2019-2020 | Ateneo de Davao University – College of Law
NOTES ON CORPORATION LAW | RM SANTIAGO 183
and desist order, the Commission shall make public such
order and a copy thereof shall be immediately furnished to
each person subject to the order.
64.3. Any person against whom a cease and desist order
was issued may, within five (5) days from receipt of the
order, file a formal request for a lifting thereof. Said
request shall be set for hearing by the Commission not later
than fifteen (15) days from its filing and the resolution
thereof shall be made not later than ten (10) days from the
termination of the hearing. If the Commission fails to
resolve the request within the time herein prescribed,
the cease and desist order shall automatically be lifted.
SEC v. PEFORMANCE FOREIGN EXCHANGE
(2006)
There are two essential requirements that must be complied
with by the SEC before it may issue a cease and desist order:
1. First, it must conduct proper investigation or
verification; and
2. Second, there must be a finding that the act or
practice, unless restrained, will operate as a fraud
on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to investing public.
Here, the first requirement is not present. Petitioner did
not conduct proper investigation or verification before it
issued the challenged orders. The clarificatory conference
undertaken by petitioner regarding respondent’s business
operations cannot be considered a proper investigation or
verification process to justify the issuance of the Cease and
Desist Order. It was merely an initial stage of such process,
considering that after it issued the said order following the
clarificatory conference, it still sought verification from the
BSP on the nature of respondent’s business activity.
Which brings us to the second requirement. Before a
cease and desist order may be issued by the SEC, there
must be a showing that the act or practice sought to be
restrained will operate as a fraud on investors or is likely to
cause grave, irreparable injury or prejudice to the investing
public. Such requirement implies that the act to be
restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act
to be restrained can only be determined after the BSP shall
have submitted its findings to petitioner. However, there is
nothing in Orders that shows how the public is greatly
prejudiced or damaged by respondent’s business operation.
Penalties
Section 73. Penalties. – Any person who violates any of
the provisions of this Code, or the rules and regulations
promulgated by the Commission under authority thereof, or
any person who, in a registration statement filed under this
Code, makes any untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, shall, upon conviction, suffer a fine of not less
than Fifty thousand pesos (P50,000) nor more than Five
million pesos (P5,000,000) or imprisonment of not less than
seven (7) years nor more than twenty-one (21) years, or
both in the discretion of the court. If the offender is a
corporation, partnership or association or other juridical
entity, the penalty may in the discretion of the court be
imposed upon such juridical entity and upon the officer or
officers of the corporation, partnership, association or entity
responsible for the violation, and if such officer is an alien,
he shall in addition to the penalties prescribed, be deported
without further proceedings after service of sentence.